A venture capital investor that makes your business more attractive

Derisking is the process of removing risk factors from your business to make it more attractive to external or external buyers. In order to become an attractive investment company, "investor-ready", this is one of the most important factors in the process of finishing.

Without knowing it, companies may have dozens of fields and hundreds of ways. In the normal course of business, the owner may not worry about these factors because they are in the "comfort zone" of the operation. However, for external participants, they need a more transparent organization so that they won't face each other in the closet.

This is important because companies are already facing uncertainty. Although venture capital investors may have reasonable tolerance for risks, they will not welcome unnecessary risks. The goal is to control the risk area as much as possible, so at least the risk is known. Most of the companies that are internally focused [that is, focused on sales, marketing, and operations for development] have not considered all areas where they are vulnerable.

The deflationary process limits exposure areas and therefore reduces uncertainty. It also increases the chances of success by increasing the clarity of almost all business areas.

Derisking is divided into two areas - one is simple clarification [that is, creating an informally arranged contract], and the other is a substantial change, that is, changing the supplier because it reduces the risk.

Some examples include:

• Formalize employee agreements. This may mean creating contracts for employees who have not previously worked, or strengthening existing contracts. A particular problem is the protection of intellectual property rights, intellectual property ownership, confidentiality and trade restrictions after the employee leaves the company.


• Create/clarify a written agreement with the supplier


• Establish/clarify agreements with customers


• Transfer "temporary" sales to contracted revenue as much as possible


• Formalize and document internal processes


• Protection of intellectual property rights - patents, designs, copyrights, etc.


• Protect data by restricting and monitoring access to critical systems [CRM, accounts, etc.]


• In the event of death, the main employee insurance [including the owner].


• Create or clarify credit terms and policies. Obtain credit in the terms of the transaction and ensure that all credits provided are documented with the correct application form and personal guarantee.


• Eliminate reliance on key people, especially the vulnerability of information or relationships that may be lost when they leave. This may mean adding additional points of contact for key customer accounts, so personal relationships are less important.


• Document key processes - gain knowledge from people's minds


• Make sure asset insurance is up to date and sufficient.


• Reduce legal risk [responsibility]. Make sure that insurance covers product liability and more.


• Ensure compliance with all ATO and ASIC regulations. Create systems for ongoing compliance.

As you can see, this is a lengthy but not exhaustive list. Audits are usually conducted to highlight areas where further work is needed. This can cost thousands of dollars and result in significantly more costs. In some cases, this process can take a year and cost hundreds of thousands of dollars.

One of the important things to remember when raising money is to increase the cost of raising funds.

This is mainly divided into two aspects:

• Actual costs - such as hiring consultants - law, accounting, business consultants, strategists, etc.


• Opportunity costs and focus changes. The process of raising funds for a business may take three months to a year [or more] of the attention of key owners and business managers. During this time, it is difficult to maintain normal attention to the things necessary for survival - such as sales, marketing and operations. This cost can be high, but it is also difficult to measure. In fact, this defocus is a major impact for any growth company that is pursuing two goals - new business, commercial financing [or ready to sell business].

If you place yourself in the shoes of the buyer who is considering purchasing [or investing in] your company, then it is clear that disinfection is required. Without experiencing the looting process, your company can include any of twelve hidden time bombs [key employees who can leave and set up in competition, unresolved legal issues, poor data security, etc.] . By transparently documenting how you check, reducing or completely eliminating your business risk, then you show buyers what you know about them.

The other side of the coin is that your company is now a more attractive buy or investment proposition. You will invest a lot of money in the development process, but the result will be a company that can now be sold [all things are equal compared to mystery. This means, first of all, you can achieve it without having happened before] Sales, and secondly, you may get a higher sales price than before.

---

Orignal From: A venture capital investor that makes your business more attractive