Certificate in Venture Capital Due Diligence
Reduce the High Risk of Investing in Startups and Learn from Industry Experts on Ways to Evaluate New Ventures
Due Diligence is the process undertaken by an investor to validate their investment thesis and gain peace of mind that the target of their investment isn't more risky than necessary. In other words, it is a process of asking questions and doing independent research to minimize the chances of bad surprises happening later (a.k.a "adverse selection").
Venture Capital Due Diligence doesn't have the luxury of unlimited time. Due to the highly competitive startup environment, VC investment decisions have to happen more quickly than M&A decisions, and therefore the market demands that the venture diligence process be much shorter.
This program represents an approach to doing a venture diligence analysis on an early stage or growth stage startup. Startups at any stage are an extremely risky investment, even when a robust diligence process is followed. This program is therefore intended as an approach to reduce risk, not eliminate it.
Additional program takeaways include:
- The program qualifies as continuing education credit for CPAs licensed in California. Lawyers may also use the program for CLE credit.
- The knowledge obtained will enable you to better de-risk venture capital and angel investments.
- The program is taught by Pepperdine faculty and industry leaders.
Learn about and perform an evaluation of the major risks of venture capital and angel investments in 12 categories:
- Company Structure & Cap Table
- Market Opportunity
- Intellectual Property
- Sales & Marketing Strategy
- Entrepreneurial Experience
- Management Team
- Founder Commitment
- Directors & Advisers
- Financial Performance
- Investment Value
- Startup Achievements
Pepperdine University, Drescher Graduate Campus
Villa Graziadio Executive Center
24255 Pacific Coast Highway
Malibu, CA 90263
Investment: Cost is per participant and includes program materials and meals (breakfast and lunch, unless otherwise noted). General registration discounts are available for Pepperdine students, alumni, veterans, and previous Executive Education program participants. Please click on "Learn More" or contact firstname.lastname@example.org for additional information.
Achievement: A Certificate of Completion and digital badge is awarded upon successful completion of the program. This program does not carry academic units/credit.
*Dates and locations may change. We will notify participants of any changes in a timely manner.
Session 1 – Intro to Due Diligence, Company Structure & the Cap Table
Venture Capital Due Diligence (venture diligence) doesn't have the luxury of unlimited time because entrepreneurs are not generally subject to a "no shop" agreement, like private equity targets are. Due to the highly competitive environment, VC investment decisions have to be made very quickly, which compresses the timeframe for the diligence process. The overall questions that VCs must answer to themselves before proceeding are: 1) is this company capable of great growth and success, and 2) is the founding team ready for funding.
In this session, we look at the current company structure (e.g. sole proprietorship, C Corporation, LLC, etc.). What are the advantages/disadvantages of each and how easily can it be transitioned to the VC's preferred structure if necessary? How long has the company been in business? Are they too new, suspiciously old without traction?
As a potential new investor in the company, the VC will want to fully understand the company's capitalization table, which documents the current ownership of the company both before and after this deal. The VC needs to understand the terms of every deal that has happened up until now, as well as how the cap table will look after this deal closes.
Session 2 – Market Opportunity
Before writing a check, investors need to be comfortable that the potential market for the product/service is large enough to warrant outside capital. Every investment must have at least the possibility of being a home run. The purpose of the questions in this section is to validate that the founders have done the research to verify that their potential customers are out there and their target market is large enough to warrant funding from investors.
Session 3 – Intellectual Property
A startup won't always be able to operate in stealth mode. As soon as it starts getting any traction in the marketplace, competitors and potential competitors will take notice. How well is the company prepared to defend itself if others start encroaching in the same space? Intellectual property (IP) includes trade secrets, patents, trademarks and copyrights. Does the startup have any of these? Are they in the position to defend them, if necessary?
Session 4 – Sales & Marketing Strategy
The best idea in the world for a product or service is worthless unless target customers are aware of it and the company has the ability to sell it to them. Are the founders continually talking to customers trying to achieve product/market fit? Are marketing and sales plans in place?
Session 5 – Entrepreneurial Experience
First-time entrepreneurs are especially risky and generally learn many hard lessons with their first venture. Founders with at least one successful exit under their belts have a much easier time raising money for their next venture. VCs bet on both the jockey (founder) and the horse (company). The goal of this session is to learn how to evaluate the jockey's characteristics and experience in order to estimate their odds of success in this venture.
Session 6 – Competition
Founders often say that their idea is completely original and that they have no competition. This is naïve because there is always competition for the customer's dollars. Furthermore, there are also always potential competitors who already have reach into the startup's target customer base and could offer a similar product or service. The purpose of this section is to evaluate if the founders have really thought through the competitive landscape and know who will be fighting against them for market share.
Session 7 – Management Team
If the people at the top of the organization don't work well together, the risk of failure - which is already considerable even in the best of circumstances – will increase substantially. Do the leaders have the skills and experience they need to succeed? Have they worked together previous with a successful outcome? This session offers approaches to evaluating the likelihood of success for the startup's management team.
Session 8 – Directors & Advisors
Good outside advisors and members of the board of directors are an effective way to de-risk a startup. They have practical benefits to the operations of the firm as well as positive impact on investors' perceptions of the firm.
Advisors with industry and management experience can be very helpful to helping founders avoid making rookie mistakes and point out opportunities to pivot. This session provides approaches to assessing the value of the startup's advisors.
Session 9 – Founder Commitment
Investors like to see founders that have significant "skin in the game," meaning that they are putting up some of their own money as capital as well as making significant contributions of time. The idea is that the more that a founder has sacrificed in time and money, the less likely they will be to walk away. This session reviews ways to assess the level of personal commitment a founder has to the venture.
Session 10 – Financial Performance
All startups have expenses. Some have revenues. A few even have profits. This session offers ways to assess the firm's financial performance to date, depending on their stage. Whether the company is idea stage, seed stage or growth stage, it is important to understand how well founders are planning and executing the financial aspects of their company.
Session 11 – Valuation
Once an investor determines that a startup is worthy of investment, the question remains how much to invest for how much of a stake. This session introduces common approaches to startup valuation, which is notoriously difficult to do for young companies, including multiples valuation and the VC Method. The Simple Agreement for Future Equity (SAFE) is also introduced, which avoids the need to do a valuation altogether.
Session 12 – Startup Achievements
This session covers many of the interesting achievements and milestones that startups may have already achieved which decrease the risk of failure of their new venture. This session will be a discussion of important achievements/milestones of a financial, organization and operational nature.
The Program in Venture Capital Due Diligence is designed for:
- Angels / VCs / Limited Partners
- Valuation Professionals
- And anyone else interested in what makes a startup company attractive to investors
Participant Industries: Venture Capital, Angel Investing, Entrepreneurship, Startups, Private Equity, Management Consulting, Valuation, Appraisal
Office of Executive Education
Graziadio Business School
6100 Center Drive, Suite 400
Los Angeles, CA 90045