Financial Due Diligence Checklist
Due Diligence, where does one begin? When considering an investment, proper due diligence gives you the perspective you need before deciding to act. But, what exactly is due diligence? And why do you as an investor need to get to grips with it? We’re continuing our women investor series, which is all about empowering women with financial literacy and access to experts and investments, with a deep dive session on Due Diligence with Kerry Leigh Miller. Kerry Leigh Miller is co-founder and general partner at Overton Venture Capital, a VC with a sweet spot for marketplaces and next-generation consumer brands. At its simplest, due diligence is an investigation to collect critical information about an investment - it’s one of the most important workflows for any investment professional. The due diligence process will explore and confirm details of a company in an effort to uncover and mitigate potential risks in an investment decision. Not only will the due diligence process lead an investor or buyer to pursue or drop a deal it will lay the foundation for structuring the deal if you decide to move forward. Making an investment decision and assessing the potential risks of that investment rely heavily on having accurate information. Good due diligence will evaluate the many risk factors that pertain to an investment. Proper due diligence includes investigating the previous and current performance of an entity, as well as the market to gauge future growth and potential returns. But it’s more than just a financial audit, it’s an investigation into the many different moving parts of a company, and Kerry is here to walk us through it all… Kerry is an inspiration and a powerhouse of a woman and we highly recommend you come loaded with questions for her.
hi everyone welcome um this is our women investors group event and the aim of the series is to empower women with financial literacy and access to experts and investments because a large very sadly selection of um eligible investors i.e women are not participating in the private markets and we want to change that so as karim said this session is 60 minutes long and we have won a month this being our second the next one is on the 11th of august so today we have two brilliant ladies speaking with us um kareem did a brief intro but i'm just gonna elaborate kerry lee miller and susan miller um that is a coincidence um carrie is irene we were thinking you should change your last name [Laughter] kerry is co-founder and general partner at overton venture capital and this year with a sweet spot for marketplaces and next-generation consumer brands in the before times she was at goldman sachs and also in management consultancy um and i should probably add in her spare time she's also co-founded a health tech startup then we are welcoming our very own susan miller um our chief growth officer she has spent over 20 years as a growth strategist at both massive global companies as well as startups i'm actually cutting her bio enormously because we could be here for a while but in short she is a total inspiration she seems to be everywhere at the same time whilst also being a mom to four kids she's a force a powerhouse and actually the brains behind this women's group so just a bit of housekeeping the way this session is going to work we're going to pick kerry's brains a little bit first about herself and how um due diligence is conducted at her firm and then we're going to ask susan to give us a bit of background from a link to your perspective as to how we vet companies um but before i hand the reins over to kerry i want to set the scene a little with some context so this session is called due diligence um so to set the scene due diligence as we all know is an investigation of a potential investment it's a bit like looking under the hood to uncover and mitigate any potential risks there are many different elements that go into it and i'm going to leave it up to these two ladies to walk us through that but one of the reasons due diligence is so important is that if it's not done correctly then you're kind of stuck involved with companies that disappoints and in this case require a humbling come down so what am i talking about well today we've witnessed slashings evaluations of really big companies we've entered a sort of correction territory um a correction of inflated valuations now we all know that the pandemic inflation etc has slammed public markets the private markets however have seen growth and the unicorn universe is larger than ever with companies staying private longer however the sea change in sentiment is reflected in the private markets in companies that had inflated valuations so below are examples of some companies that have kind of overheated i'm just looking at this table on the public side there's robin hood a firm zoom coupang and diddy but on the private side we have instacart which is a grocery delivery company it cut its internal valuation by about 38.5 percent to 24 billion clarner which you guys might have all um have heard about in the news recently this is the buy now pay later giant um and had its valuation cut to 6.7 billion from 46 billion accompanying a sort of 800 million raise that's a question you know that's an interesting one irini because um link two was given the opportunity to invest in klarna and so we did extensive due diligence and as a part of that process it actually um led us to to not make the inves investment at that higher valuation but when it was presented to us that valuation was the 46 billion um and so can you imagine had we invested on behalf of the the membership you know looking at today's valuation um wouldn't have been a favorable one but needless to say dodged to that one yeah dodged a bullet and also i mean i was about to say that that klanner is one of those businesses that's kind of at the mercy of macroeconomic headwinds um so inflation is skyrocketing and when central banks hike their rates companies like this their margins narrow right um so that should have been a red flag which we greatly spotted um but um that's all about doing due diligence so go go link to um dual labs jewel was also silicon valley darling that's completely hit a wall with vaping being banned in certain markets and then stripe actually um over here in the eu um it's a payments processing company and it has experienced like a significant valuation cuts so what is happening um i like to call it a potent cocktail of issues this is in part response to the shifting macroeconomic environment pandemic soaring inflation higher rates and unfortunately not even the tech industry can defy gravity which is evident in the public markets however in the private markets these valuations were kind of too lofty to begin with piggybacking off like soaring valuations of public companies and they're now suffering this kind of very very harsh come down so what is the answer the answer is due diligence is key um and obviously as susan just mentioned um you know we we kind of got that right with clarner um in the second half of 2021. um and we should all as individuals um as investors as individuals understand what goes into due diligence um and there is kind of a silver lining to all of this um which is that it's not all doom and gloom um valuations are down so this is kind of a good time to invest um but how do we go about it we need to pick the right companies and we need to apply discipline and we need to learn from those in the know so um kerry without further ado i'm gonna pull you into this conversation um to kick us off though could you give us a brief intro into your story and how you got to becoming an institutional investor take us back a bit to like where you started out sure and thank you so much for having me as you all know i've been so impressed with the link to platform and love partnering with y'all as thought leaders as well in the private markets and it's great to see several of the overton's vcs on the call and other partners and at the end of the day it's incredible to give opportunities to women right a lot of it is it's an overwhelming space and how do we have these forums that really kind of show you that there's many paths to investing and you don't have to have a finance background um or kind of the likes the traditional routes um don't necessarily warrant those features so my background is i was a finance major undergrad and i've always had kind of a math and analytical mind um i started my career in management consulting i started my career in 2001 entering wall street at a time you know right as a recession was starting and my first clients as a management consultant were companies that were under scrutiny because of some of the bad behaviors around the executive pay and the incentives that were aligned with these companies um and i got at that time really fascinated with its kind of thinking through on my data side is there a correlation between the incentives at these publicly traded companies and the performance of these companies this was in the era of enron and tyco and new york stock exchange having very public stories um and i was so fascinated with it that i decided to go back to business school and focus on organizational design and behavior um because i really kind of started making these hypotheses that the incentives could drive behaviors in wall street and in companies um post business school i ended up in a house at goldman sachs in various hr strategy roles i entered goldman as head of recruiting strategy which was essentially looking at the data for correlators of success um banks spend millions of dollars recruiting the top talent and then after a year all that talent leaves because they're looking for other opportunities and so how can we use some of this internal data that we already have to make more responsible decisions about bringing in top talent and again i entered the market again at a perfect time 2008 to lead this role in recruiting strategy and my roles started to shift at goldman and the blessing for me was um in 2009 the head of recruiting or the sorry the head of hr say congratulations we are saving you after downsizing the firm by thirty percent um and you are now going to be working with don duett don duett was the cto responsible for technology infrastructure um it was the first time in my life i had kind of worked with technologists and it was a blessing in disguise because for four years i helped work on innovation strategy focused on technology at goldman sachs and that was when many companies were starting to kind of turn into these technology companies and today goldman a third of the company are technologists so that kind of gives you like a kind of a framework of where my vantage point is coming from analytically minding focused on talent and thinking through like talent strategy at companies how i got into angel investing and everyone says how about like you're an hr professional how the heck did you start how do you have a fund so and that's where i kind of especially for women so there are so many paths to getting into investing for me in my network i started i was the the hr guru so kind of the minute i went to goldman it was hey kerry can you look at my cv is there a role for me what started materializing in my network was these same individuals are now in private equity or venture capital or startup founders and the things that they were thinking through was a and private equity a change in control of a leadership team maybe some toxicity uh was coming in and they needed some help the same thing with early stage companies hey we're scaling from two employees to five employees to ten to a hundred to a thousand and that was the thing that was most critical on the success on the business and my network started reaching out um to help them think through some of the talent strategy practices and it was when i was at goldman i actually wasn't allowed to trade in the public markets it was a conflict of interest however i could start investing in the private markets if it wasn't a conflict of interest and as somebody i've always been a first mover in technologies i'm always like to be the first because i'm curious i'm obsessed with consumer behavior so even as a child i was always like the first on that new game or that new technology because i was curious on what the adoption would be and how people would come on and so as my network started reaching out to me to help them with their particular ideas when i saw something that my gut and intuition said hey this is an interesting opportunity and i also most likely knew the leadership team or i was one degree away that i fundamentally as an angel was investing because i really believed in the team i also needed to feel like there was an opportunity for those investments um and that's where i started my angel investing uh journey and kind of my yeah i asked were any of the early investments hr tech related i know uh timing wise that there was a bit of a boom around uh some of those innovation offerings yeah so i will say i probably early on i missed out on some of the hr tech offerings it really was kind of my thesis as an investor was you know did i did my gun and intuition suggest that just i've always been somebody that's active in my networks and i have a diverse network of all types of industry experts and i'm always listening and i'm always curious i used to leave the dinner like with social events i would leave the table and say before we leave give me a stock tip or give me your thoughts because i was always like just you know like curious for knowledge so to answer your question shockingly no today yes um but you know my first exit was on in a solar energy company based on a for class mine made of mine for um business school that had that exact challenge where it was two founders all of a sudden they were scaling uh grew to 100 employees and you know they they needed help and i was their first call and so i knew the founder very well i really kind of saw the vision of oh my gosh energy esg like there's got to be a better way and i really saw and i started doing my own research um and seeing that i thought that the tan the total addressable market was massive so that was actually my first angel investment and then i had other like you know i invested in a friend of mine from atlanta georgia you know there was an opportunity he had the first live streaming music platform and this was 10 over 10 years ago um and now obviously live streaming and interactive experiences are the norm but this is well ahead of its time where he recognized there's all these artists and these musicians and all these fans that would love to have an experience with them and he started a company stage it so again it was a friend of mine who came to me and i had these opportunities and so i'll talk you know a little bit about how i thought about it as an angel as just like a basic and then we can kind of depending on question season and irene that you have but also kind of one of the things that we want to do is okay how did i go from thinking about it as an angel to now having an institution where we have frameworks for evaluating the opportunity and how you all as you dive in to think about it how you might be able to bring some of these principles and just to your thought process um so as a as an angel it really was based on talent you can have an incredible product or service but at the end of the day you're investing in the founder especially early which is where the investments i've been making um i will invest in some later stage opportunities like some of the ones that link to comes in but i'd say my sweet spot as an angel was pre-seed and seed you know there was an idea maybe the product or service was in the market however they haven't figured out that product market fit and so recognizing that you need the right founders um in order to get that company because they're gonna pivot it's a recognition that there might be a white space opportunity but you're really investing in the founders so really diving into what is their track record you know how can you if you don't know them how can you do the right reference checks to make sure you're really pulling back the layers and my i always like saying especially for reference checks you know even now you always ask you know who would be the great references of course that entrepreneur is gonna give like we do with job interviews or anything you know those that are gonna speak very highly of you however once i get into that reference check i then say okay um do you know other people that they've worked with and like really going deep to make sure that you can kind of get that right impression of that founder some of them you know investing in a serial entrepreneur where you've already seen those successes that's a lot easier to do than a first-time entrepreneur so the team was something as an angel that was really important again i'm somebody who was all constantly consuming and listening from my network and so as a futurist when i saw these opportunities where i said hey that makes a lot of sense if i'm not an expert i would say at this point i become a supernode i love talking about web3 and like blockchain and if you don't know that space we can talk about it separately there's actually a recording from the link to conference on metaverse that actually went out to our investors today um but nodes are like the networks around you that kind of distribute knowledge and the way that i think about it is if you have those nodes those industry experts and you're able to validate your gut um that was my approach so if i knew the team and i thought that there was something there as an angel i would then reach out to my network who was an industry expert in transportation and energy in areas that i wasn't an expert in to validate that hey is there actually like a white space what do you think of this idea i would share the deck etc because as an angel you might have limited information if you're not an institutional investor and you have an opportunity to write you know angel checks can be anywhere from ten to a hundred thousand dollars um and so sometimes you might not get the time and attention of getting a full data room to do an extensive review so based on the information that you have how can you bring in others to help you make those more informed decisions so that was kind of my approach as an angel so qui a couple questions and follow-up um for folks on the call who maybe aren't as experienced um when you talk about a seed stage company how um how much revenue do you think they have at that point do they have revenue or you know when you're investing how early are you looking yeah so a seed stage they might have revenue they might not so the typical like rounds of funding for an early stage company there could be a friends and family round you know that's like the true angel round um that could be the precede so i have an idea you know i might have had like some traction in building the product maybe the products on in the market and they're starting to sew some initial like customers coming on um seed round could be similarly but there's there's some initial normally there's some initial data that you can look at so the product might be in the market they're still iterating they haven't found necessarily that product market fit but you're starting to capture some data so back to revenue there's companies that you know don't have any revenue that they're literally social media companies earlier on that you're looking at other metrics around engagement you know how many monthly active users may use you know how many daily active users um how long are they on the platform you know um and looking at the industry a lot of the things you can google like what's the industry average for time on platform for a dating app for an example you know what is the normal like growth look like early stage because we know which companies have been successful especially the public companies public companies share their they have to share their data and so there's ways to kind of back in because every industry has different metrics around what they're looking at so c could be revenue producing we like as a fund want to see that the product or service is in the market and they're already starting to show sales anywhere from 50 000 to a million in sales ideally we will go earlier when we really think it's a play on the talent like they're serial entrepreneurs we've identified that there's a white space opportunity and we will go earlier but our main focus is product or service is in the market and they're starting to show some initial like data that shows they're on the right path um and then after seed it goes normally to series a um round which is when they probably have figured out their product market fit they still might be you know like adding products and services to their existing model and still tinkering with that model but most likely they've already proven some product market fit and then from series a series b c d d f until they're acquired or they go public so i'd say early stage investing tends to be until about a series b and then you're moving into more like growth equity where they're starting they might be profitable for kind of overton we want to see that there's a path to profitability they're not there yet but they're a year or so away um and then by the time you get kind of to that series b most likely hopefully they're showing paths to profitability in a meaningful way if they haven't already got in there which the data that you will have to validate your investment thesis is very different and that's where maybe you're relying more heavily on publicly like available information like the multiples in the industry so for uh for uh juxtaposition when i look at link2's investments we are investing in later stage so when you're talking about for example today um today yesterday we launched um degreed which is our our latest investment on the platform and they're a series d company um who already has a 1.4 billion dollar valuation right um so when we think about the amount of money that someone in a series d stage would have raised already friends and family checks might be around the you know any ten to a hundred thousand dollars um i think at this point they've raised 180 million right um so uh sometimes investing really early can give you uh that higher return um other times it's a little riskier so when you're thinking about your your risk profile of what your appetite is um and i think to you know to your point kerry i would say the other place where i think it's interesting as a serial entrepreneur myself so this is my fourth startup um the way that you describe looking at the companies is almost exactly the way that i evaluate startups that i'm going to go work at right so if you can work with serial entrepreneurs who have had successful exits be it acquisition or ipo or someone who has been funded by the same vc or venture capital the same institutional investor even better from the same fund um where it's like okay they've had these like good good turns good exits um so anyway interesting as you think about both the talent strategy as well as an investment strategy you might be doing some of the same types of due diligence absolutely and irene i don't know if it makes sense we had talked about you know me sharing i can share my screen and show you okay so as an angel this is how we looked at it and then how as a fun we look at it because in my head i feel like there's this soft due diligence which is what we've kind of been speaking about which is kind of the human side of things um and then there's kind of hard due diligence which is mathematics and legalities and i feel like that's the arena that we're about to enter into when you talk about it from an institutional perspective so it'd be really great to get a perspective on that and actually one quick question as you transition um and i i suppose it happened it plays out for you for y'all in both but um what if you're someone on this call uh or listening to the replay who doesn't have the same type of network that you have with the diversity across so many different industries and connections to the founders or you know what might you recommend as ways that folks could uh build some of those connections or you know what what uh type of research might you suggest yeah such a great question um so you know to build connections you know getting involved in other communities like link two um universities alumni groups most of them have a venture group um and so are hosting informational and that's a great because these are then industry and functional experts that are part of the groups that are also looking to network and share opportunities so alumni groups are great avenues every city has some kind of like venture network and so plugging into those because you're gonna then be around and there's a lot of angels groups as well that you can participate in so those are like great avenues for networking um as far as like tools that you can use back to like looking at the data um crunch base um and pitch books some of them they have subscription services but even if you don't subscribe there's information so one of the important things and i'll get into it when i talk about just the way we look at it as an institution who else is at the table it doesn't need to be a herd mentality by any means because a lot of the value is because you found it first right especially as an angel however many of these companies especially by the time they get to seed might already have some institutions at the table so one of the things that i look for especially as an angel is it shows on crunch base it shows the different investors based on the round that they invested in if you see that an investor has invested at the various rounds see which ones invested in the next round so for an example if you're looking at like in series a and you see that you know great crop invested in both the pre-seed and the seed like hmm they double downed um however if you see that maybe a find invested only at the pre-seed and didn't double down that doesn't mean it's not a good opportunity because that fun strategy might only invest at one specific realm like pre-seed but i'd want to know a little bit more okay i see gray crop is at the pre-seed but i don't see their name on this the the seed hmm like that would be something i'd want to understand so those are just some like other tips that i would recommend and then if you don't know about those funds if you see the names you can look at their track record uh to see hey has this fund had exits before um because again those are things that you can search on crunch space for so that's just like another metrics and then you know just searching for another thing on that actually karen one other thing i look at when i think about investors are also are there some strategics maybe who have gotten involved so what i mean by that is maybe there's a company that's doing something really innovative related to i don't know credit cards or something let's say um and you see mastercard or visa is listed or amex is list their venture team um is listed at capital one as one of the investors um so you can look for uh great point think about like future growth um certainly there's investors who are re-up re-upping and participating in the next round but i also think about okay what's the future of this company is there a potential exit uh to one of these strategic investors that's an incredible point and a lot of times early when we're investing it might be too early for those real strategic partners however as an angel and this is where you also have a lot of leverage those that are listening if you have an expertise like that was my way to the on the cap table was hey they would waive the minimum because a lot of opportunities they say you have to minimally invest 100 000 to be an investor you know there were so many times that minimum was waived for me as an angel because they they wanted my help or they wanted my expertise and so knowing that there's that path but it's such a great point susan like looking at you know who are those strategic investors and sometimes it's an angel that you know is the ceo or the cto of a well-known company because it's maybe too early for that company to be a strategic investor so excellent excellent point and then on other things if you don't have that network google right i'm looking for opportunities that the total addressable market is massive like i want if i'm going to invest in risky businesses i want to know that the investment opportunity is like a 5 billion dollar marketplace so doing a little bit of research of how big is this opportunity and who what's the competitive landscape look like it's okay if there's competitors and it's a hundred billion dollar opportunity however if it's a billion dollar opportunity and i already see it's a crowded space it's a harder space to penetrate so looking at those things for validators um yeah before you transition one other thing is are there any red flags that you notice along the way um from angel investing perspective that we should be aware of yeah so i think for me it's always back to the team you know i'm looking at like everything i'm looking at their youtube videos how are they talking um you know if i have an opportunity to meet with the founder it's how are they talking about their team are they saying we are they saying i you know how are they coachable i purposely like asked a like a you know i purposely will give feedback and just see how they respond to the feedback because you really like want to be investing in founders who are coachable um and recognize that they're not going to tackle this entire you know the company themselves they're gonna have to bring in other people around them so recognizing do they have a sense of what other skills they need in order to grow so those are kind of the things and i would say not like it's just things that i'm listening for how do they think about their team how coachable are they um and those are like the things that i'm most like focused on and just to kind of like put things in perspective and susan you said it like look any of this is you know it's it you as investors like know what your risk profile is you know maybe it's hey i want to put five percent to the riskiest investments and then i'm conservative and everything else some are like hey i'm gonna put 50 like depending on where you are with early stage at like seed and precede you know the risk return you know 90 percent of companies fail 90 so 1 out of every 10 is going to succeed and so the purpose of this is how do you mitigate that you know that that failure rate um and focus on some of these points um and just like a little bit of data um as an angel investor if you had invested in uber and then you had invested 25 000 in uber that investment would be worth 100 million dollars so just to give you like a sense of like you know risk reward like the upside is so monstrous but high likelihood of failure and so listen looking at some of these can help mitigate those and some of it i've learned right the best way that i learned this is i haven't had a home run every time and you know but some of it especially on the team side is now i see some of these like things that we've been able to incorporate into over 10's investment thesis yeah i think um at link to we had for the companies we invested in in 2021 um we had i think 41 of them had an exit and so when you think about where from a risk reward perspective you're not seeing the seed stage you know seed stage uber uh valuation increase uh but investing in you know typically linked to we invest in a unicorn or a company that's valued over a billion dollars already um and so still upside but not the same um uh rate perhaps that you would see with the the seed stage where you're really placing bats more i think at that point um and and so to that end um what are some of the other factors that you look at yeah so if i can share my screen it'll be i think a good um hold on two seconds i'm gonna make sure i head it up okay let me go back okay share screen can you see my slide and i'm gonna slide show let's do from the beginning yeah can you see it yeah yes okay so this is literally so in overtime we have a score card um and that was really if you kind of look at my business partner and i we have two very different backgrounds my business partner was head of strategy at the gap 1-800 flowers um and he was a former entrepreneur who sold his company to zappos michael nogan is his name and you know we had two very different background i have the like the talent strategy finance he has the operational background and so when we launched we said how do we get on the same page uh to feel comfortable about the investments that we are making on behalf of ourselves and our limited partners and these are really the evaluation criteria that we use and we actually have a scorecard uh to have an analytical approach that you know these are companies that we move forward on have to have a score of at least 80 percent no company when we're investing is going to be a hundred percent and so we need a score of at least 80 percent to move it over uh to cons for consideration so the valuation for us is really important you know we're early stage investors now valuations have gotten frothy and now they're coming back down but we kind of have kept it to say look our investments need to be a valuation of under 15 million dollars um and again it's more for where our risk profile is and the returns that we're looking for uh the deal structure is really important we look for things like pro rata rights which guarantees if the company raises additional capital we can maintain our percentage ownership of those companies um and like i said who else are the other key and lead investors we are co-investing we do not lead at this point and so it's really important that we know what our value-add is we are active investors we have a bench of 40 operating partners we are hands-on with our portfolio companies however we're not leading so we need to make sure that the lead really has a reputation that we are proud to partner with um and then i will also add um actually i'll get when i get to the team but um so that's more of like the structure the valuation team founder market fit are they the right founder like what do you know there's many superpowers out there and are they the right founder is it the right team what is their track record the thing that i talked about are they coachable and back to you we provide feedback really to see how do they take it how do they respond and then you know you need a founder who like is gonna be able to marshal and build a culture um and so are these uh leaders that others are gonna be at the table with also one of the things that we look at are what are the incentives backed in my background is you want to see i mean it's an interesting thing because there's a lot of data around when when founders are raising their capital um you want to see that they have significant equity in the company because you want to make sure and the executives have um have a a an amount of equity that incentivizes them to stay so we're looking at what's the cap table which shows all the investors and all the owners of equity of that company and we want to see that the the founders really have a significant stake in that company so the incentives are aligned so again the team is still really fundamentally like one of the most important things if not the most important things and then kind of beyond that it's the product you know is the is there an up are we confident in the technology is there a remote you know what makes it defensible you know if they have patents awesome but if it's not a technology maybe it's a marketplace have they already proven that they can scale both sides of the marketplace the supply and the demand side so and then with that how are they differentiated compared to the others that are in the market um i think just one one point on that as well as you think about building that moat around the company it could be that they already have as you were saying before like maybe they're not uh revenue positive yet but they have a huge user base um or it could be they have a you know they've partnered with all the key people in the industry um it could be um you know that they actually have a ton of of customers they're figuring out how to monetize them but so kind of range of different ways it could be as you said patents or something unique about the product um where i always think like how difficult is it for someone else to be a fast follower and come in and try and replicate exactly what they're doing could someone else who has even better expertise or knowledge in the market be able to come in and do it even better just take the idea so what have they done to build some defensive positioning that's exactly correct um and then you know how scalable it is you know as a fund we like to say we like to invest in needs first once there's many wants that are incredible businesses but we really want to see that there's a need is it venture backable it might be a great business that's going to be positive cash flow but it's not going to give us that like you know incredible rocket ship that we're looking for so even if we like all the above we really want to see that it's scalable and it's been trackable and then back to some of the points you just raised on the business side like you know is there a clearly defined business plan so i think alyssa had asked you know how do we see that after profitability um back to we are looking at their financials to understand where is this money if they you know what is their runway we always want to know how many months do they have um in current like cash in the bank and then from there we can look at their historicals to see how they spent it based on team product sales and we're really diving in to say okay based on the amount of money they're raising now how much runway does that extend based on their projections of where this money is being spent and from there we can see where that path to profitability is and again early on they are pivoting however what we're looking for is is it reasonable have they made reasonable assumptions knowing that some of these levers are going to change but based on historical data and based on where they're spending this money do we see that path to profitability and that's really what we're looking at and then back to kind of you so you had mentioned earlier a data room and that might be something different from a friends and family as an angel investor versus you know at overton um for folks who maybe don't know can you talk a little bit about what types of things might be in a data room that could give you more context on some of the things that you're talking about right now sure i mean so like you know at a minimum we want to see um you know in incorporation documents like you want to make sure this is a legitimate business it's always really telling as well what lawyers they've used at this point some you know have they really engaged real lawyers um or are these kind of yc documents that haven't it doesn't mean it's a no-go but you want to really see like that legal like check the box like this is a real legitimate company um historical financials like i said have they modeled out do they have actuals can you see their p l they're operating you know like like ass you know their balance sheet and like typical if they've been around for a couple years they obviously have to have accounting and so seeing those validations that they have financial statements and then from there what types of models do they have do they a lot of companies have a forecast that shows some of the historicals so those are minimums and then customer list you know what is their sales pipeline we want to see some of their marketing material for their brand and services so that i'd say is at a minimum what we want to see in their data room um and those are things that i think are just normal requests and then beyond that there's there's more there's more to it um and then as far as like customer attraction and other things back to revenues and hornet however many companies especially social media and others might not have revenue yet but you're really looking at what are those month over month growth trajectory like for the last six months at least have they demonstrated a reasonable path to that monetization to instill some confidence in their business model um that's really kind of where we're laser focused um and then you know do the unit economics make sense um are we confident in this business based on those unit economics so really diving into that even if there's limited data and again recognizing that things might shift have they already really thought through kind of how they're spending and the metrics around where they are and where they're going and so some things people might ask about uh when you're looking through a data room or you're looking at the business model and the you know some of the uh forecasts and such you could be looking at your cost of customer acquisition or the company's pipeline when they look at like um how many of the uh prospects that are in their pipeline are in this stage versus how close are they to actually closing a deal depending on the nature of the company um or you might be looking at their uh their average price point um the day's um sales cycle time you know the number of days it takes for a sale to close so kind of a range of things based on the business that you'll try to get an understanding of okay so if they had this many customers converting at this rate at this pace at this price point okay here's what i think their revenue could actually be versus what they're kind of telling me um now that i've learned a little bit about seeing those customer lists or seeing the prospect list or the forecast um you know i've been in companies where we've shared access to our salesforce.com documents our quickbooks our you know all the different um uh tech services and software that you might be using so you know i think for example when i look at block daemon a company that we just invest in or degrade a company you know we know from looking through the institutional investors who made those investments in the d or e rounds um that they've gone through exactly as you're saying some of these very granularly detailed checklists yeah and they're exactly like everything you just said is spot on so cat which is customer acquisition cost is a really important number because you want to make sure that they're not paying a significant amount to acquire a new customer and back to the sales data and the customer you know if it's an enterprise sales model the lead times to close a deal could be six months but once they close one like it's monstrous and maybe they only have four enterprise customers uh versus a consumer product that you want to see it really low cac and time to close is very quickly because it's instant and then you know one of our companies linguado which is a social learning app they just turned on their pro feature their revenue so as we were looking at it and now as they're raising a new round of capital the things that investors will look at is how much time are people staying on the platform and people are saying 22 minutes which is like incredible for an app 22 minutes that people are staying on and every day there's 30 000 new members that come on and you know a high retention of these customers so even though the revenue at this point is low we are showing signs that as they start to put on there's revenue like models that they have a really sticky audience so looking at time on platform how and they have spent pretty much no money on marketing um just through like viral videos and every time a viral video goes out another 30 000 users come on and so those are showing signs of progress outside of necessarily just having revenue and for you to know back to google like every industry has different metrics that you can look at and depending on the industry like googling hey i'm looking at a social media company what are some of the like metrics i should be looking at so that's kind of on the business side and then on the market side you know what are back to like what are those market dynamics the barriers to entry um is this a fragmented marketplace you know again back to some of the stuff with the product we want to see that maybe it's a hundred billion dollar opportunity and a hundred other types of you know competitors however it's such a large market that we think many can survive versus like huge white space opportunity no one is in the market yet so really understanding what are those barriers to entry and what already exists in the market uh yep no no continue on i'll go after you finished now and then i was gonna say the tan the total addressable market we're really looking for is it at least a five billion dollar opportunity um and these are things that you can google and find out like what are these like markets looking like or piece it together maybe it's a new market that's being developed right right now in what three metaverse like virtual like like what what is that and trying to kind of get your head around what those assumptions around addressing what the real market size is is really important and on average like how long does this due diligence process take i know that's such a generic question but notoriously in the uk this process can take a really long time um and then also after that um susan i'm wondering whether i'm conscious of time you could speak a little to link to his vetting process and how it compares with what kerry's just run through um and um you know the steps that we kind of go through yeah yeah and like for us as far as like timing you know we like we like to say from like intro to clothes we can get it done in a month um they're i say ideally it's six weeks because we're also asking for customer references we want to talk to the other investors and those are things that we do through our due diligence process a we want to meet the members of the team we want to meet customers and we want to meet other investors so that can like like make it in that six weeks we've had opportunities that we've had a week to decide and so we we can run through this very quickly and most companies by the time we invest already have a data room sometimes it's a little earlier we're helping them but that's like the timeline and just to like close out what i said and you can see on the screen you know it's really like these are pieces of these these are things that you and everyone can do in different ways no company is gonna check the box on everything um there's always risk to accept and then for you as an investor if you want to be helpful you know for us we're always looking can we be helpful and that for us is really important in our due diligence process and depending on where you want you know um to use your time so i will stop talking and throw it over to you susan awesome carrie this is phenomenal and i will say you know when you're making an investment as an individual um it can be a heavy lift right to go through all of that by yourself and it's actually one of the reasons why i love the originations team at link2 where i can talk to them about you know all of the different things we look at many of the same things that that that you went through um though where we are focused is as we said um versus overton linked to is investing in companies who are um i would say further along in their growth path um and so you know the first thing we have been looking at a lot of uh right now particularly where evaluations are we've been looking at well what are some of the the companies in the sectors that are holding valuations um and so right now a lot of digital asset companies is it's a place where pe private equity firms and vc venture capital firms are continuing to invest one of the things that we saw also with private companies um that family offices so you think about large family wealth funds they are increasing the allocation and actually shifting given what's happening in the market today in the public market um shifting even more dollars into this space into private companies um and so we know they go through a lot of these same factors so some of the things we might look at would be as you know you mentioned the valuation and the valuation history um for us typically it could be a d round company um we think about what is the pace that a company needs to be on to be able to hit that billion dollar unicorn mark um and then um we think about a for some of the companies we're seeing uh for some of the institutional investors that we follow you know as we're thinking about who is participating in their rounds um companies are looking at um their corporate governance and looking at the uh social equity dei so there are some new factors that are coming into play that some funds in particular will only invest in um female founders or you know there's kind of a range um or uh you know different types of of uh criteria that let's say companies are using um and then from just big picture summary perspective like absolutely you know we think about what's the momentum of the company so what's the pace in the trajectory that they've been on from a valuation perspective you know we want to see a steep curve um and hopefully same thing from a customer acquisition as well as um their you know any of the fine any of the metrics that might be on their income statement so if you're thinking about their earnings before uh their interest in taxes or you're thinking about their profit or their margins you know all of those things that are are in a positive direction um employee growth is another one right now when i looked back last week after seeing even more news about a lot of tech companies um who may be shedding employees i looked back at the companies like ripple labs and uphold and bloom reach even link two that are on our platform and they're all still hiring um you know so these are companies where despite what's happening in the market they're continuing to invest as you said you know you're thinking about where are they investing what are the types of things so that's all i i also will look at the job placements like ripple labs for example so i was just looking at it they're hiring over a hundred um engineers and they you know it tells what are the job descriptions so by that as an investor i can go and look and get a sense of what are the parts of their um their product offering that they're uh doubling down on right so where are they putting more engineers where are they putting more developers um and then um let's see so we talked a little bit about uh the competitors and the competitive landscape um i also want to see well what are the valuations of their competitors and the revenue so how are they positioned and what's their strategic point of differentiation or the unique value proposition um also just adding on to the evaluation topic is that i know when we had a discussion earlier you were saying like you know even if we love what the company's doing their partners their leadership etc if um if their valuation is wrong what does link to do about it because i know there's been some examples where we've we've kind of removed portfolio companies right yeah so we um we have a uh you know of course the investment thesis as we talked about and looking through all the different parameters and criteria but then at the end of the day because what we're doing we are actually the investor we invest link2 is on the cap table and then we're giving members of our community access to our slices right so piece of our investment through we use special purpose vehicles or spvs and so um we're still in the pool with you right and we want to be really confident to say like the water's warm there's no sharks like come on in with us uh join us in the investment um and so the not only does the valuation have to be right but the price per share and the pricing around it it's really important or we we won't make the investment so if we can't acquire it um and participate in that investment at a really a price that is favorable to investors um you know it's not an it's an investment that will pass like klarna for example um either because we think they're overvalued or because what they're willing to sell secondary shares for uh in the you know in the market is not something that we would be able to pass on to on to our investors um we did have a company recently where we felt like from our continued due diligence and ongoing look at the valuation of the company we felt like they um they were overvalued and we actually reduced the price on the platform um i haven't seen us do that before uh but it's something where you know when there are changes in the market again uh we want to make sure we're doing the right thing by the the broad group of investors that participate um so hopefully that gives a little bit of a sense i would say big picture a lot of what linked to is focused on our our high growth later stage maybe mid-stage tech companies um digital assets very popular right now and that could be um not we're not investing in crypto per se but like crypto infrastructure or someone who's using that like ripple labs to facilitate their business or uphold right um were there a digital wallet the anything to anything um wallet uh or nfts though again you know would i buy a you would irene buy a cryptokitty irene owns one owned um but like would i buy essentially a digital baseball card like i don't know right now i love the concept of smart contracts though and enterprise use case so i would think more about the infrastructure and how a company is using it um so again digital assets continue to be a hot space where we're we're spending a lot of time um and um and then we are looking at companies who are over a billion dollars almost every i mean there might be an exception here or there but generally speaking there are unicorn companies who are over a billion dollars in um in their valuation uh and and ideally you know i think about like bloom reaches ceo said last year that they planned to have an exit this end of this year or next uh ripple ceo has said the same thing they plan on going public you know so and just because the ceo says that is it definitely going to happen um no but uh it does give some indication that they're they're planning what their liquidity event is you know is is there some exit in the future so hopefully that helps give a little bit more context on how um link2 is using a lot of the same types of criteria um we may be at a slightly different place in a company's life cycle for the types of investments that we're presenting to um to members but um kerry fabulous to join you today and we welcome all of your great insight and know that uh we'll continue to partner with kerry and hopefully give our members access to her great insight thank you susan and back to there was a couple questions really quickly one said you know how did i as an investor look at platforms like lean2 and back to team number one and it's not clear i mean y'all built the most incredible team and going through those due diligence and understanding the due diligence of those platforms is really important so uh i wanted to uh take the flow from susan which she said kerry hopefully we'll dive deeper into each of these categories as we continue this series of learning how to invest so this is investment 101 we've got to go to investment 102 can we schedule you to pick up investing 102 which is to go in a particular aspect of a company because what we've done is broadly covered all the aspects of investing what we'd like to be able to do is de dive deeper into particular aspects that make it compete different so we'll hopefully we'll program that with you in the upcoming weeks but i think we have a couple of questions i really if you'd uh uh i don't know if you are still there but if you would like to ask a question the floor is yours you do have to unmute give you a couple of minutes otherwise we have laurie as well who would like to ask a question hi thank you so much ladies um i love link two first of all i've been with you since um early 2020 um and uh i have a kind of a question uh it's gonna be hard for me to ask but i'm gonna try to you know connect the dots here so uh i is you know i i your due diligence process i trust in it obviously that's why i invest in and the companies that you put on the platform and um my qu what attracted me early on is that link to really is the investor and however uh and this kind of brings what kerry was saying into the conversation is seeing what you what amount link to invest which you guys don't disclose and i have to say that i've made a lot of investments in the companies that are on the platform but i have not invested in link to because i have no visibility into what link to is invested in right which ultimately you know will give the returns at the end of the day some will be users some will but if if a big portion of your investments align with my investments then link two helps me further diversify my portfolio uh would you consider uh you know having visibility just like you know if i went and made an investment i wanted to see who the investors are on the cap table right like or if you're making second like additional investments which carry also mentioned is always a good sign that would give me a sign to buy more of what i started buying or more of linked to yeah absolutely um yes so um we have made uh 224 investments into 43 companies so we've definitely doubled tripled quadrupled quintupled down into a couple you can probably guess what some of them are um the most recent deal that we closed um i think today was another investment in ripple labs we have so much demand from our members that that's another thing that we're looking at where are the places you know we've done the due diligence we've vetted it we know what the valuation you know is um it's 15 billion we know what the um what the price per share that we want to pay is so um when we see an offering out there the other thing that's interesting we often buy shares from key executives um what we do that's different from a lot of other players who might be a broker dealer for example who might be out there in the market people are not typically liquidating their entire um their entire holdings but someone might say gosh i own i'm i'm beyond wealthy on paper um but i really need to send my kid to college or i want to put that addition on or we've been thinking about the summer home or i have medical bills or what have you so um our typical investment um size for first investment is probably around you know 250 to 300 000 in a company um for a company like ripple labs uh the last investment that we made was a million dollars and if we invest a million in a company because you're buying a larger [Music] quantity of you know making a larger investment you can usually take the price per share down a little bit so someone might be willing to give you a little bit more flexibility and then what we've done is when we're able to do that we actually put the shares up in a tranche of shares so you have access to we just made this buy these are the ones that are presented on the platform right now we might have some you know kind of back in the warehouse if you will but these are the ones we're putting up and so we're able to pass the pricing along to members so if you ever see pricing vary from investment to investment i actually also think it's a great opportunity as an investor to dollar cost average down your investment so maybe i paid 48.5 last time and this time it's 47 um but now my average price that i've paid i've reduced it because i have some at the lower and some of the higher um so uh let's see so big picture although there are 43 different companies that we've invested in um it's 224 investments in those and so it is going back to you know for example we've made multiple investments in um uphold we've made multiple investments in um block fi or sorry bit pay and when there are favorites like a kraken and an opera same type of thing where we'll continue to look on the market we reach out to um executives uh and sometimes when someone sells then they'll tell their friend like oh yeah we were able to you know get liquidity today um and there's actually a section on our website that is uh sell and so yeah yeah so one of the other questions you asked was like well what about link to who are our investors if you go on to oh i'm sorry but maybe i've misstated well i really want to see what link to is invested in i know you're saying 224 you know 43 invest 224 investments in 43 companies but let's say let's take ripple for example is linked to made up 10 of its inv overall investments are in ripple is 20 in ripple is 2 in ripple i think in order to for investors to invest in link to they have to see who link to is invested in right right right you're gonna those are assets right yeah so a little different right so on the who have we invested in when we invest typically we end up holding let's say five to ten percent of a company we could sell out of it so it's possible we've invested in a company and now we don't we're not we're working okay maybe that's where the confusion is what are you holding not right obviously you're investing and then you're passing it on i guess exactly how much are you holding i'm sorry exactly exactly so um right now the largest holding that we have is ripple um and uh it's interesting as i think about what'll happen who knows but my crystal ball with the sec court case um you know i can see it becoming a place where the only place where you can get liquidity where you can get access to ripple shares it'll be linked to because we we do have a sizable holding um i i will have to do a little bit more research i can follow up laurie on what what are the percentages but if you look at the portfolio broadly on the invest tab on link two um you could think that ballpark whatever the investment size that was made so you can see the total amount of shares that are available that we've probably held let's say five to ten percent of every single company um and so our portfolio is diversified but we have as you said we've passed through a lot of the ripple uh but that right now is probably our largest holding right we've also had more offerings on the ripples exactly okay so i'm going to uh allow me now to just uh step in a little bit we're a tip thank you rub the clock out of this one i think we have a couple of questions on the q a if we could briefly answer those and then we're going to close this out thank you everyone for participating so far carry answered one um but the other one you had was in your due diligence process how much do you factor in sustainability and ethical aspects yeah such a great question and we actually just added it to our due diligence process in a formal way we do we're not an impact fund however i'm proud that over 50 of our portfolio companies are diversity-led women black or hispanic so that is always from the beginning of launching the fun that has always been and we'll invest in a white founder however through the due diligence process like we want to see diverse teams so from an esg perspective that's really important and now also carbon neutral companies and how they're thinking about energy is really important and back to like the opportunities in the space like a massive the the issue and i actually i was at davos at the world economic forum and you know the cio of guggenheim and others were talking about this topic and thinking through like the deficit right now in the market is you know companies come up with their esg policies but there's no tracking mechanism sec is about to release they're like the regulatory like rules especially for managed funds in companies on what the expectations are going to be moving forward so we have seen a lot of opportunities that are focused on those tracking and technologies that will stem back to accountability um that will allow companies to be able to report on it and to track it because right now it's great you know blackrock announces their est sustainability report and areas they're focused on but what about the accountability around it and so we're seeing a lot of like tools that are coming into the marketplace to focus on it so yes it's important to us it's one of the things that we consider um and you know we'll continue to do it moving forward thank you so much gary i want to answer one quick question here by john he put it in the chat which is what does the series mean the series means every time we make it investment that's a series so you know we start 10 million up front if it is that series one if we do another investment later on that series two series three series four et cetera that's how how it works um and one one point of note just on that crim that typically when a company does their sec you know let you do your a round you do when you do your b round there's a new valuation so there'd be a new free money and post money valuation um and so that's one of the reasons why the um that which series is it is important correct thank you uh to follow up with laurie quickly and any anyone else who has questions similar to laurie is we do have an investment team we are completely open and transparent we can spend time with you on the phone or the zoom call if you like just let us just set up a schedule an appointment and we could have a conversation more in depth about any particular questions that you have didn't need to shut this down in a zoom call but uh we do have an investment team that will help you out with your questions uh also about diversification of your assets and investment strategies we will walk you through that opportunities that are best for you susan irene kerry the rest of you thank you so much for being here it's been awesome uh we look forward to seeing you again kerry we're going to pick this up but on investing102 and we'll dive deeper into a particular aspect i really please schedule kerry because we want her back i've spent some time with kerry and we have not even touched the surface of our knowledge i can tell you that now so we want to dive deeper into that thank you all thank you very much let us know by email uh what else you'd like to hear about what particular aspects you'd like to investigate in investing investing made simple uh tell us uh what else you'd like to hear about as you know we're having blockchain coming up next after that we'll be speaking about if you know of people or are someone who wants to liquidate some of your options and shares in a hot company and you need some liquidity let us know we're always willing to take a look at that and then obviously sign up for the next event and we'll see you later thank you all thank you susan thank y'all see y'all soon bye