When we bring on a new issuer client, there is an extensive level of due diligence that is required by the Firm. Our investment bankers will perform research on companies to understand the nature of the deal, the risks involved, and whether the deal fits with our business standards. This process of due diligence may vary depending on the type of company or investment but generally involves a few key areas:
The finances of a company being considered for investment are among the first items our investment bankers inspect. We then investigate a company’s historical financial performance, usually over a period of about three years. This inspection includes analyzing revenue, expenses, and company cash flows, as well as any assets or liabilities held by the company. This search also identifies any potential tax liabilities that can result from non-compliance or simple errors.
We also take into consideration a company’s industry, including its strategic plan and where it sits among its competitors. This process involves analyzing a company’s top customers and affiliates, reviewing its products and suppliers, as well as its R&D, marketing, and sales programs. Lastly, we look at any major shareholders of a company as well as the salary of everyone in managerial and lower employment roles.
Legal and Accounting
Legal due diligence involves evaluating the overall legal condition of the company, including any current or potential litigation involving the company, patents, leases, or contracts. Legal due diligence ensures any rights acquired by an investor are valid and free from legal risk. We also analyze a company’s accounting policies, including its controls and cash management.
We evaluate the organizational and management structure of a company, including its founders and top players, including any shareholders and key stakeholders of a company. As a part of this due diligence, we will also review organizational documents and corporate records.
Not all due diligence mandates that investment bankers examine these two areas, but these are common considerations depending on the investment. If necessary, investment bankers may visit a company’s physical location to assess the property or any physical assets that will be acquired as part of the investment deal. Investment bankers may also evaluate any environmental issues facing a company and how any such issues may affect a company’s future. This evaluation includes looking at any environmental permits a company holds or environmental claims related to a company.
Due diligence processes may vary depending on whether or not a company is public or private, but the list of requirements for due diligence does not change. The more information investment bankers acquire through comprehensive due diligence, the lower the risk for an investor.
Netshares’ vetting and due diligence processes cannot predict the potential for success, or lack thereof, of any company or investment. Investing in private markets is highly risky and investors can lose their entire investment. In making an investment decision, investors must rely on their own examination of the offering documentation, the issuer, and the terms of an offering.
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