May 2010Company Due Diligence Process

The University of Texas at Austin

What Is Due Diligence?• Market

– Value Proposition– Opportunity– Customers

• Team• Technology• Risks• ATI Value Add and Fit

Doing your homework on a company can mean the difference between success and

failure! 2

Why Due Diligence Is Important

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The due diligence efforts highlight companies that Have strong potential to generate new jobs and create wealth Directly leverage ATI’s capabilities and knowledge Provide educational opportunities for University faculty and students

Investment risk:

Do we think this company has a good chance to succeed?

ATI impact:

Can ATI add distinctive value to this company?

ATI Admissions

Performing due diligence increases ATI’s effectiveness in serving the needs of the

companies.

• Strategic coaching and mentoring• Business plan development• Access to UT and community talent• Corporate and professional partnerships, networks• Funding proposals and introductions• Business infrastructure support

We work directly with early stage companies

Support broader Austin tech community

Why DD Is Important - Part 2

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ATI spends significant time with companies after they are admitted, so understanding if and how we can help the company is critical.

Roles and Responsibilities

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The due diligence efforts require intense interactions from multiple stakeholders

Internal Process Interns lead the process and provide recommendations ATI staff support the interns and facilitate their work as needed Domain experts are utilized in a highly targeted, efficient manner

Role Responsibility Typical ActionsATI Staff Manage high level process

Provide coaching to interns Manage entrepreneurs as needed

Discuss methodology Provide sources for research Provide contact information for domain expert Coach interns through process

ATI Interns Perform due diligence Have a perspective on candidate companies

Secondary research Calls with entrepreneurs Calls with domain experts Internal discussions Weekly presentation

Entrepreneurs Provide input for due diligence Submit business plan and related materials Calls with staff / interns

Domain Experts Provide insight on technology and opportunity

Calls with staff / interns

• Initial Screen• Basic Due Diligence• Deep Dive Due Diligence• Director Review• Success Committee (includes Industry

Experts)• Admit/Decline Decision Made

Due Diligence Steps

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• What is the market pain being solved?• How does the company solve this pain?• Are customers aware of the pain?• How big is the pain being solved? (painkiller

vs. vitamin)• What changes and costs must the customer

incur to purchase the products?

Value Proposition

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• What is the market size?• What are the major segments in the

market?• What are the general growth rates?• What are the market dynamics?• Does the company have additional markets

identified to grow into?• Barriers to entry?

Market Assessment

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• Who are the customers and how does the company plan to reach them?

• What is the company’s go-to-market strategy?

• How does the company price its products or services?

• What are the company’s financial projects?

Customers and Revenue Model

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• How committed is the team?• What is the background/experience of the

team?– Industry– Prior start-ups

• Is the Founder/CEO coachable?• What major team members is the company

missing?

Management Team

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• Who are the major competitors?• How are the company’s products/services

different than their competitors?• Where are the competitors in their stage of

company development? – Funds raised– Executive team– Product development

Competition

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• What is the technology and where is it in the development cycle?

• How is the technology protected? – Patents– Trade secrets

• How much does it cost to build?– Prototype– Quantity

Technology

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• How much money has the company raised?• How much do they want to raise and how do

they want to use it?• What does the capitalization table look like?• How much cash does the company have and

how long can it operate?• What are the financial projections and are

the assumptions sound?• What is the company’s form of

incorporation and legal situation?

Funding & Finances

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• What key risks has the company identified?• What key risks were uncovered during due

diligence by ATI interns/staff?– People– Technology– Market

• What are current economic factors?

Key Risks

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• How can ATI help the management team?– Relationships– Connections to funding– Business planning– Strategic Advice/Coaching– Space

• Can ATI help the company given current resource allocations?

ATI Value Add

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• How can ATI help the management team?– Relationships– Connections to funding– Business planning– Strategic Advice/Coaching– Space

• Can ATI help the company given current resource allocations?

ATI Value Add

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Overview• Take time to research and understand the

company’s:– Market– Team– Technology– Risks– ATI Value Add and Fit

• Bring in experts to help you assess the viability of a company

Perform due diligence properly and increase your odds of picking companies that will

succeed! 17

Questions

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Graduate from ATIReview

VetInternally

VetExternally

Set Milestones

Technology

People

Market

Admit into ATI

Up to 3 years or:1) When a major funding round is obtained2) When significant cash from operations are

achieved3) When ATI can no longer add significant

value4) Death

Incubation Process at ATI

Screen

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