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Due diligence is an essential part of the job, except that it differs as a stage or project, and whether it is more or less detailed, whether or not to issue a special report, etc. In particular, investment can be done almost exclusively Today, share your own experience and thinking about how to make the best use of this work, both for sharing and for guidance.
What needs to be explained is that while making allotments can be divided into industry research, law enforcement, financial dedication, people's dedication, etc., separation is only a necessary skill for the work to be carried out and can not be a reason for one-sided understanding and therefore , I will use the law to do my best to discuss the whole work of thinking. The three questions about so-called due diligence refer to: 
01 Why do you do the best This is the necessity or reason, as well as the purpose of the best effort. There are two reasons: 1. Decision needs information, but 2. Information asymmetry & uncertainty. Equity investment business is the process of communication and persuasion, and to convince, you need information or data or evidence. Investment managers through visits, access to files and so on to collect information and data, making reports, through professional analysis and judgment, to make 'Investment advice' submitted to the Investment Committee, the Investment Commission and then based on these information and data to make investment decisions.
Information is not complete enough, accurate enough to directly determine the outcome of investment decisions or investment success or not.If you are a voter, you have to decide whether or not to vote, how much investment, how to vote, the risk is what, where the risk can not be avoided Or can not afford ... ... To answer these questions, as a professional reliable investors, you can not just go along with the feeling, you need evidence to support, without you even decided to vote, then you are blind vote, if you are holding funds Of your investment, you are not responsible for your LP. If you are an investment manager, your job is to convince the Commission to vote in favor of your proposed project. What do you convince them to accept your opinion? Can be solid evidence! In theory, if you get 100 percent complete and accurate information, every investment you make can be successful on every project, making a big profit. But that is a dream, and in reality, resources are scarce and information is always. Complete, the information is always inaccurate, the information is always uncertain, the world is like that, is full of uncertainty. what is it now? Professor Zhu Suli once said that one of the most profound and thorough people who studied China was Mao Tse-tung and Fei Xiaotong, and I think it makes sense. Mao Zedong wrote in "Opposition to the Book of Righteousism:" Without a survey, there was no speech Right, not doing a good job of surveying, and having no say. "The reason why Fei Lao's" Jiangcun Economy "and" Native China "are so classic is because they have done a lot of 'due diligence.' Therefore, in order to obtain the information you need, The only thing to do is to make every effort to make every effort to make every effort to make the most of the relevant information and data as much as possible and under all kinds of 'limited conditions' The more the more accurate, the more reliable, the higher the success rate of investment! Talking about the specific purpose of making it perfect, there are two: Find value 2 found the problem We often say that doing things must have a very strong purpose .To do what is the purpose of what will determine what you want to investigate, what is the focus, what is less important, and to what extent the investigation .So, it can be said that the purpose of the command The whole job. 'Know your enemy, know yourself.' This is the way the negotiations, who control more effective information more fully, who will win. Moreover, our research is not in place, chatting with the founder may be difficult, let alone negotiate. To do the best before the tune, the purpose is very clear, the first is through the investigation and study of the company or project to be invested is not worth the investment or valuation to determine, as the basis for subsequent negotiations, for example, you need to carry out the industry / Market research, but also on the specific project business model, profit model, which are the suppliers, customers who have to wait for the investigation and analysis, these are in order to answer the question worth noting, the value of money. The other one is through the investigation found that the risk of this project or company or existing problems, that is, risk management in terms of 'risk identification'. The first is a state of mind, we are not all right to find fault, nor is it the same as muddy water to sing empty, people are not perfect, business is relatively speaking, we should be more constructive criticism and reasonable suspicion .But from From a technical point of view, only a company like Drizzler can inquire into a company very deeply and carefully, because his motivation is much stronger than that of other people. A similar example is a book, "King and Knife." Very classic, for Japan this country, the study of this nation one-third, why, because at that time there is a purpose, the United States want to get Japan, so there is this research project, and later only this book.So, if you do not consider the limitations Conditions, in the state of mind to be exhausted, and even concrete practice, muddy water is worth learning.Of course, the company's guiding mechanism to provide protection for this, if done with the best can pass, then no one will go Pay attention to make every effort to carefully write the report. When it comes to risk, whether it is financial, legal or market risk is the company, we voted, there is our share.You need to judge, what risks or problems exist, in particular, will affect the company's future development, financing And even into the capital market, because the exit involved.Of course, only the identification is not the ultimate goal.Dotential transfer should not be pure information collection, there is no point in the analysis is not meaningful.So, risk analysis and evaluation is due due diligence, you want Answer the following questions: what are the deadly issues and which ones must be dealt with by the target companies and which ones we can help them solve, and these issues will also serve as the basis for subsequent negotiations and even the drafting of investment agreements. Someone should ask: How to evaluate these problems? I think at least can think so, investment program design exit channel is the IPO, then there should be no IPO does not accept the problem, such as your technology investment, technology simply is not you, another example, the business is complete Rely on other agencies, not independent and so on. In fact, it is also quite important that if we vote for him in the future, these problems will be the demand for post-investment value-added services. 02 What to do
The 'standard list of due diligence' can be seen everywhere, but there is no standard answer for what to tweak, for what to do is limited by 'why do you want to be exhausted', especially if you want to be tedious Service specific business constraints, for example, our angel investment to do all you can, and ipo, the new board, bonds and the like is not the same.So, it is not an exaggeration to say, on the exhaustive list Every one, have to think and answer: Why check this, what is the purpose and meaning? 
The following is a list of the important items in the list before the general equity investment. However, I can only pick some of them and say a few more about the purpose and the specific materials. Historical evolution The key point here is the situation of shareholders, including the contributions made by all shareholders for subscription, whether there is entrustment or not, whether shareholders have any other special agreement or not, and the various changes in shareholding such as share transfers, such as share transfers Capital increase and capital reduction. (1) capital contribution situation because we are equity investment, we will be one of the shareholders in the future, we are generally funded in place soon, that is, our interests and the company has a substantive bond, we Have to worry about that other shareholders, especially the founder shareholders have no capital, there is no binding, how much contribution, how much binding? So to identify the funding situation. In addition to not being in place or in place too little, there may be more funding situation, that is, shareholders beyond the subscription of registered capital to fight the company money, did not define whether the money increase or loan, or what else mean, this problem will both Leading to financial messy, but also lead to a major hidden trouble between shareholders, had to identify and seek rectification. Of course, the form of contribution is also a key issue.For example, if someone invests with intangible assets, then whether the value is fair or not, whether the ownership is clear and so on is related to the possibility of being identified as fictitious investment, Corporate finance or access to capital markets. (3) Equity ownership. Equity ownership is OK, but after all, there are vague defects and risks of equity disputes. Therefore, it is important to find out that if there is no relevant agreement on behalf of the agency, we must ask them In fact, if possible, we should try our best to avoid substitution and require the founders to change their name to the holding platform as soon as possible, and we can also send a professional team to assist the enterprises to complete the signing agreement. (4) Equity Structure Equity structure setting is not fair and reasonable with respect to the control of the company and the distribution of benefits, and fundamentally determines the team's stability, responsibility and the fate of the company.Although there is no absolutely correct structure, but some practice The structure of testing for malpractices should still be avoided. For example, if the real founder or core person occupies a relatively small number of shares, or there is no reserved pool of options for motivating employees, they all need to be investigated clearly Ins and outs, and according to the specific circumstances require the company to adjust. (5) changes in equity. Equity transfer, capital increase and capital reduction, etc., should pay attention to the reasons and operation is not standardized .We encountered a very low level of error .This company can not tell the share transfer and capital increase, signed the agreement It is replenishment, which also clearly write more money into the registered capital, how much into the capital fund, and made the same with the truth, the fact is that the money to the other shareholders, the registered capital is also motionless, the so-called investors are not in the charter Appeared in the industry and commerce where registered .This company has gone through several rounds of financing later, this problem was suddenly put forward, ultimately, some communication and coordination.Critical time, this problem is to delay the big event, in case the market Before, so a dispute occurred. (6) In the survey above, in addition to business registration and filing of information, but also need to pay attention to the shareholders signed an agreement, if the previous financing, but also pay special attention to investors, companies, shareholders and follow-up financing restrictions. More specifically, the historical evolution can not only check the business records, write a time node, but must identify the real situation, and must see the transaction file, you say that stock transfer, then you must see the stock transfer agreement If you say that it is a capital increase, you must look at the capital increase agreement. You must also pay attention to whether there is a supplementary agreement.
Organizational structure We have to identify the company's internal governance structure, including directors and supervisors, but also identify any branches, including branches, subsidiaries, etc., as well as related businesses. For example, some people do several companies at the same time, if we pay special attention Founder of the ALL IN, that this is very important to related businesses; we have seen such entrepreneurs, for different purposes, such as applying for government subsidies, etc., set up companies in various places, a few, we only vote for one Well, the founder must determine which company to do; whether or not to write off other companies is better. In addition, the composition of the company's board of directors, senior management positions, etc. are also related to the future of the company. Attention is needed. 3. The core team This is an exhaustive adjustment for people, especially the founders. Because we think that early investment is mainly investment, so the best adjustment to people should be the most important thing. Then what do we care about the founders? I Think, at least, including competency, stability and security. In order to identify the degree of competency, you can see the qualifications, abilities and experiences, etc. In order to ascertain the so-called security, you have to check whether there is no original non-competition agreement, to check their personal credit information and in the circle In the evaluation, there is no lawsuit; even how the spouse relationship, his own physical condition .Participate in this piece of children we have a group of people to do the work, such as the spouse wrote a promise or signed an agreement, but the physical condition of this piece I have not heard of anyone asking for the founder to do the physical examination, but I have heard of other people's cases. Soon after the interview, the founder died of illness. The stability of the team is also very crucial. We also have relevant experience , Including some of the company's key positions, such as technical director, chief financial officer, etc., frequent changes, which have to find out why. Startups, if the core team, the key positions split, basically this business was finished. 4. The main assets The hard-tech startups we are targeting, in addition to focusing on the team, are the most important asset over technology, so special attention should be paid to the technology. In addition to the technology's own leading, unique, etc., the law made every effort to require attention to the ownership of technology because many technology entrepreneurs are leaving the business, that is, he has 'the original unit', then he is not the technology often What they say is his own technology, but rather belongs to the creation of job creation.If it is a patent, you need to pay attention to the validity of the patent, the duration of the protection, etc., if it is non-patented technology, should be well done, this technology has It is not possible to infringe the intellectual property rights of others, have no permission to use for others and so on. In addition, when I mentioned the allocation of equity, I noted the precautions for technology investment. Apart from the clarity of ownership, complete capital contribution procedures, reasonable valuation and the correlation between technology and main business, this should also be the content of the investigation. Of course, other assets, such as trademarks, copyrights, equipment, factories, etc., if the special industry, as well as related qualifications, all need to be identified when confidentially, because these may be related to the valuation, the business related to whether Imagine doing so. 5. Market Analysis 6. Product Business 7. Taxation situation This part requires legal and financial team to complete.Financial statements is a record of business operations, if it has been operating for some time the company, through the inspection and analysis of statements, you can find some problems in business operations. Some of the entrepreneurs I’ve met have registered for the company. However, the business is often run in vitro. For example, if the registered capital is not paid, the income and expenditure of the business go from the personal account, and the company’s and founders’ personal finances are mixed. There are great legal risks, such as the possibility of applying the legal personality disregarding system, which increases the personal risk of the founders; at the same time, this also leads to the company’s financial irregularity, which does not accurately reflect the company’s operations and must be sorted out. The founder of the company, the company no money, it directly to the company playing money, also can not say what the meaning of this money is borrowed? Capital contribution? These do not understand, we can not go in. 8. Debts and debts 9. Litigation punishment In order to investigate the lawsuit, of course, it does not mean that the company cannot have lawsuits, but must check the reasons. Then it is necessary to analyze whether there is a problem in the management and management. It is necessary to check the contingent debts. For example, some companies may provide guarantees to others and may need to Bear a large debt, which can not be identified, and then look at the rationality, and then determine which recognized, which need to be defined in the subsequent investment agreement. We make early investments, projects or companies do not have as much information and data as the vc and PE stages. This feature should be acknowledged, but this does not constitute a reason why we do not do exhaustive or sloppy adjustments, at least as listed above. In fact, even if you do your utmost, you may not be able to check that comprehensively, not to mention that you did not try your best from the beginning. 01 How to do it all This is the problem of surgery. It is where to get the information that can be used to make decisions. Just now, the second question 'doing something about it' is subject to the constraint of the first question 'why does it do it'. Again, this is the third The second question is also subject to a number of questions, that is, where to look, depending on what you want to check, to what extent. Discipline principle Comprehensive, objective and prudent, this is the most basic. What is comprehensive means to conduct a comprehensive investigation and study of a project or a company from the aspects of law, finance, business, personnel, management, industry, etc. Again, this is a whole, and more concretely, the process and achievements , unless it is properly cooperated with all parties, fully communicate, mutual verification or support can be completed effectively. What is objective, that is, do not subjective imaginary .This is most people are easy to make mistakes, I have seen, and even the key issue of the right to technology, are asking the founder of a cry .There is no external security, If you don’t investigate, you say, “Shouldn’t it?” or “How could he have external guarantees?” This is very incomprehensible. It is said that there are other people who directly use the results of the exhaustion of other people's homes. You decide on these materials and The objectivity of the conclusion? To put it in concrete terms, it is not objective, that is, evidence-based, and objective judgments supported by every judgment should be pursued. Therefore, it is imperative to make every effort to make a good working paper, to preserve it, to stand trial and no evidence to support it Investment advice. What is a cautious? To give an example. To check whether the company has no complaints, how to check? Can not find the referee paperwork, dishonesty by the public announcement platform? Or to go to the court? To which court? Again, the Arbitration Commission should not go to labor arbitration? Or, someone said, do not be so troublesome, and some really can not check ah. I would like to say that allot is actually careful investigation, prudence is one of the basic principles of prudence Therefore, I emphasize that unless the conditions such as the time is not allowed, or should make every effort to use all possible means to investigate and obtain information. Let the company issued a solemn promise is a complementary means, can not be regarded as first choice. investigation method 
It should be said that there are a variety of method channels, all roads lead to Rome, and all villages have their own tricks. They can do as long as they can achieve the goal of adjustment. Commonly used: (1) Tailor made it to the company from the very beginning, it is required to be provided according to the list and generally can solve a large part of the problem, but I think that the mind should be clear and the channel is at best a material or a clue, You should not judge the evidence without discrimination, you have to judge, you have to use other evidence to confirm each other.It is often heard that the project side is very strong and incompatible, but this is often caused by ourselves, Because we do not have a plan and we need information from other people in three days and two, this is very unprofessional, of course, annoying. Therefore, we should first do a solid job preparatory work and strive to do a one-time checklist, letting the project preparation. (2) fieldwork.Well to see the truth, personally fieldwork to get first-hand information, if experienced, attentive, in the field may also be able to get a lot of information that can not be reflected in various documents.For example, you do not Go to the scene, not to understand the true working conditions of the company's employees, or the actual production situation, assets, etc. Speaking of this, I even think of "hacker empire", think of the relationship between the real world and the virtual world. People feel the same way. (3) Interview Minutes Interviews with shareholders, executives, employees, suppliers, and clients of the company are important channels for obtaining information about the company or the founders, and the work is fairly artistic because it is a human Communicating with others, communicating effectively and getting effective information is largely influenced by your interviewing skills, so we also need to improve our ability to get things done, listen to things, and listen to thunder in the silent place. , Can not be too troublesome to find a few, but can not be said to let you find who you are looking for, there should be a purpose choice, planned .In order to understand the industry or market or technical conditions, interviews with industry associations, industry Big coffee, related experts are also necessary. (4) Third-party inquiries, such as business tax, are necessary. The company's profile must be found. More than that, it must be compared with the actual situation because the actual agreements that may be implemented by shareholders may not be the same as those registered with the AIC ; Another example is the information on the lawsuit, you need to go to the judgment paper network, dishonesty was publicized platform and so on to conduct a database survey, enterprises check, Kai Bao and other APP can also check, but should pay attention to a variety of different channels to judge; related Qualification certification bodies have to go to determine the enterprise should obtain the relevant permits, qualification is obtained, the specific circumstances.According to different industries, may have to go to the relevant administrative authorities for environmental protection and other appropriate penalties and so on. More than investigation
The complete tone is not limited to the survey, can not write well, the report can not be ignored .Have done well to write the report, make the best of the best, badly written report, the decision may be wrong.Space length, Just say a few comments, exhaustive report can not just pile up the material or the original information, and no analysis, such as the historical evolution, there should be a summary of the above facts, and then analyze what are the problems, such as the previous share transfer operation Whether norms, ownership structure is set unreasonable place, or not to adjust, suggest how to adjust.Especially when we put the allotted report and investment proposals merged into one, the investment manager just piled up materials, without making a clear We must doubt our opinions. We conclude by saying that it is not easy to talk about 'suggesting that the Investment Commission agree to invest'. To sum it up, to make all you can do is to be qualified. What is done is qualified. It is determined by the business itself. Investment decisions require information that is as accurate as possible. Whether decisions are sufficient or not is a criterion for judging the achievement of good qualifications. Therefore, to make every effort to emphasize on the importance of our investment business is not an overemphasis, and we hope everyone will give it enough attention. On the other hand, the project team, the pre-trial committee and the Investment Commission should also pay special attention to these issues and strictly enforce them Check, correct guidance, so that our team more and more professional, so that our organization more and more professional.
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