Venture Capital (VC) vs. Multinational: A Founder’s 90 Seconds Guide to Financial Due Diligence

As a founder, you may be familiar with the term “financial due diligence” – the process of investigating a potential investor, partner, or acquisition target. However, not all due diligences are created equal. Depending on the type of investor or partner you’re working with, the due diligence process may differ significantly. The leading players in Israel’s investment ecosystems are Venture Capitals (VCs) and multinationals, such as Amazon, Microsoft, Intel, and the like. Let’s explore the differences between VC financial due diligence and multinational financial due diligence and the strategies behind those different approaches.

CPA (Adv.) Gilad Finkelstein

VC Financial Due Diligence

When working with a VC, the due diligence process is typically focused on assessing the potential financial returns of your startup. VCs are looking for startups that can deliver a high return on investment (ROI) within a relatively short time frame, typically 3-7 years.

As a result, VC financial due diligence is often focused on assessing the following areas:

  • Market size and potential: VCs want to invest in startups addressing large and growing markets with significant potential for revenue growth.
  • Revenue and growth potential: VCs want to see evidence of traction and growth and will often evaluate \Key Performance Indicators (KPIs) such as Customer Acquisition Cost (CAC), LifeTime Value (LTV), and Churn Rate.
  • Financial projections: VCs will often review your financial projections to assess the potential ROI of their investment. They may also review your financial history to ensure that your projections are realistic and achievable.

The strategy behind VC financial due diligence is to identify startups that have the potential to deliver a high ROI within a relatively short time frame. VCs seek startups that can scale quickly and generate significant revenue growth with a clear path to profitability.

Multinational Financial Due Diligence

When working with a multinational corporation, the due diligence process typically focuses on assessing the financial and operational risks and opportunities associated with the target company. Multinationals are often looking to acquire or partner with startups to access new markets, technologies, or talent.

As a result, multinational financial due diligence is often focused on assessing the following areas:

  • Intellectual property and patents: Multinationals are often interested in startups that have developed proprietary technology or intellectual property that can be leveraged for their products or services.
  • Legal and regulatory compliance: Multinationals will often review the startup’s legal and regulatory compliance to ensure no legal or financial risks are associated with the opportunity.
  • Operational and financial due diligence: Multinationals will review your financial history and operations to assess the risks and opportunities associated with the target company. They may also evaluate your management team and talent to ensure they have the necessary skills and expertise to carry out the business targets.

The strategy behind multinational financial due diligence is to identify startups that can help the multinational achieve its strategic objectives, whether entering a new market, developing new products or services, accessing new talent or technology, or avoiding competition. Multinationals often look for startups that can provide unique value and differentiation and be integrated seamlessly into their operations.

In conclusion, founders should be dialed in and understand the differences between VC and multinational financial due diligence to be better prepared and adjusted. While both processes are designed to assess the risks and opportunities associated with a particular target company, the strategies and areas of focus may differ significantly.

We assist startup companies in preparation for due diligence and guide them through each part of the deal process. The value in quality due diligence serves both sides of the deal and goes beyond the final report, so why leave the outcome to chance?

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