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Module 103: Adding Value Through Due Diligence – Course Description

Description

This module will equip you to manage the risks of choosing an investment, by performing a thorough due diligence investigation of a prospective deal.

Overview

Effective due diligence (DD) is one of the most important parts of angel investing. This module introduces students to the key investigations that will uncover major risk factors and potential deal-breakers. The module emphasizes how to identify the most critical information, the risks of not knowing it, and the methods and costs of getting it. Students will learn what it takes to mitigate the risk of investment by validating a market opportunity, a management team, and a plan. They will be introduced to a disciplined investigation approach that systematically examines sources of risk, and establishes the basis for a productive and trusting relationship with the entrepreneur.

Learning objectives

By the end of this module the student will be able to:

• Identify the major sources of risk in an investment deal

• Explain the tradeoffs inherent in the time and costs of due diligence

• Identify the essential risks in a particular deal and avoid wasting time on minor matters

• Apply a range of checklists, templates, and frameworks to ensure appropriate depth and breadth in their investigations

• Proactively manage the process of due diligence investigation.

Prerequisites

Students should have completed module 101 or have equivalent direct experience as an angel investor.

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Pedagogy

A mix of panel discussions, case studies, and instructor-led group discussions will predominate the methods used in this module.

Detailed topics

This module will cover:

• The range of risks in a firm, and how they vary by stage and by sector

• The effects of market uncertainty and business pivots

• Cost-benefit analysis: when is enough?

• The danger of adverse selection: when is too much?

• Special challenges in assessing management

• Creating a DD team and plan

• Managing the DD process.

Assignments

Online self-assessment exercises will confirm the ability of independent studies students to (1) identify key areas of risk and DD emphasis in a deal, (2) create and implement a DD plan, (3) correctly apply DD templates, and (4), interpret incoming data to see the underlying risks.

Schedule

Four one-hour blocks, corresponding to the assignments above. Offered regionally each summer as a single session. Offered again in winters if demand in a particular region warrants.

Student Prep Work

None required.