Steps to Growth Capital New Tech Case Story

New Tech Case Story — Step 9

The Challenge: Closing

New Tech is near the finish line. It has a negotiated agreement with an angel investor. Now it must close the deal. One of its last challenges is the comprehensive due diligence review required in the investment agreement.

The investor, Warren Buffet, has already done high-level due diligence, before and during the negotiations. He reviewed basic financial information presented with their proposal and checked the personal and professional references of the management team. (New Tech has done some investigating itself. They contacted some of the companies Buffet has invested in and confirmed that Buffet is viewed as an outstanding angel investor.)

Now comes an in-depth review of New Tech's operations and financial status by experts. Grant Agent (New Tech's financial advisor) meets with Stuart Chip (New Tech's CEO and owner) and Elizabeth Smart (in-house accountant) and advises them that the best way to meet this challenge is to be prepared. The review will give feedback to Buffet not just on the numerical results of the work, but qualitative factors such as perceptions of management. If the due diligence review is chaotic due to New Tech being disorganized, it could backfire and Buffet could change his mind.

Key Tasks

New Tech consults with Grant and with Tony Lee of Smith & Smith, their legal counsel, on how to prepare for the review. They recommend some financial and operation housekeeping that will make the due diligence review more smooth. New Tech must:

• secure intellectual property rights on key assets (New Tech's patents on several modules had not yet been filed);
  
• bring contracts up to date (a contract with one of the Japanese semiconductor suppliers is expiring, so Tony suggests New Tech arrange to renew it);
  
• clean up financial dealings between the company and the owner's family (there are a number of non-arm's length family loans to be eliminated);
  
• appoint auditors (Tony suggests New Tech engage a firm of auditors, as any investor is likely to insist on it); and
  
• check that the agreement complies with securities regulations (Tony advises them that the transaction New Tech is about to enter into with Buffet is in compliance).

Grant also advises Stuart and Elizabeth to be proactive and contact Buffet and the professionals who will conduct the due diligence review for him. New Tech will be ahead if it finds out what it can expect and how it can help.

Read about the due diligence process New Tech experienced.

Read how the deal closed and a partnership was formed for future growth.

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