What institutions generally do due diligence?

In general, due diligence mainly includes the following aspects: 1, industry and market due diligence: look at the prospect of the industry where the enterprise is located and the position where the enterprise is located. 2. Business operation due diligence: look at the products, technologies, intellectual property rights, business models, core competitive advantages, management structure and processes of the enterprise. 3. Financial due diligence: Look at the authenticity of enterprise financial data and cash flow pattern, so as to make profit forecast and establish financial model for valuation. 4. Legal due diligence: mainly to judge the feasibility and possible timetable of listing of enterprises and determine the transaction structure of investment enterprises. 5. Human resource due diligence: mainly evaluate the relationship between management team and core competitiveness of enterprises, the advantages and disadvantages of managers, salary incentive system, etc. The purpose is to facilitate the recruitment of new China management team in the future and establish an effective management incentive system. The basic contents of due diligence are similar, but to improve the quality, in addition to the cooperation of lawyers and accountants from high-level professional intermediaries, venture capital also has its own work: first, on-the-spot investigation and intuitive judgment; Secondly, the control of details and investment logic; The third is quantitative analysis. Let's introduce these three steps in detail. The first step: no field visits, no field meetings with relevant key figures, and an intuitive impression. Due diligence is the moon in the water. So, how to capture valuable information in the interview? 1. Visiting the manufacturing factory on the spot can give you a clear understanding of the business process, the advanced level of production equipment, the complexity of product production and the main cost composition of products. This is of great help to understand the entry barriers and competitive advantages of enterprises, and can be compared with the declared competitive advantages of enterprises. The first enterprise investigation case: a construction machinery enterprise, for example, we visited a construction machinery enterprise, and we can see that the core parts of the enterprise, including engines and hydraulic components, are imported. The enterprise's own production only involves the processing, welding, assembly and painting of metal plates. We saw at the scene that some products could not be assembled because the core components were not in place, and the core components had to be ordered several months in advance. It can be inferred that enterprises need a lot of liquidity as "advance payment" to purchase parts. At the same time, combined with the reality that dealers should be given a certain account period in product sales, we have a clear understanding of the pressure of "liquidity" of enterprises and the degree to which the "gross profit margin" of enterprises' products is affected by the fluctuation of steel prices. 2. By examining whether the "job site" is clean, whether the division of functions is clear, and whether the placement of spare parts, finished products and semi-finished products is standardized, the actual management level of the enterprise can be measured. By observing the "Kanban" in the workshop, we can know whether the production plan of the enterprise is full (if only the production plan of the last few months is written on it, there will be problems) and the problems existing in production (generally, enterprises with better management will point out the problems existing in recent production, including penalties for relevant personnel and rectification requirements, etc.). ), as well as the important problems faced by enterprises that need to be solved. By going deep into the "warehouse" of the enterprise, we can inspect the inventory management of the enterprise and feel the sales of the enterprise products. The second enterprise investigation case: an electrical appliance enterprise, for example, when we visited an electrical appliance enterprise, we saw a batch of products with earlier production dates in the warehouse. The entrepreneur said that it was because the customer's related supporting projects were delayed. However, investors will worry about the quality and payment terms of corporate customers. 3. By observing employees' age, time of coming to the company, scientific and technological content of jobs, business proficiency and working spirit, we can predict the human resources situation of enterprises. This kind of inspection is even more important if you invest in the service industry. For example, if you visit chain service enterprises, you can experience their services, communicate with service personnel, feel their work morale, and understand their process of entering the company, income level and satisfaction with the enterprise. In this way, we can see the systematic process of enterprise personnel recruitment management and its competitiveness in human resources. Random visits to the store during normal business hours can show the extent to which the business of the enterprise is recognized by the market. And by observing whether the clerk service is orderly under busy working conditions, we can examine the design of business processes, the training of employees and the hidden management level. 4. Visit dealers, customers and suppliers on the spot. Although in most cases, this is what enterprises need and have arranged, we can still deepen our understanding of the industry from the perspective of these insiders. You can also judge the business style and philosophy of the enterprise from their cooperation history with the enterprise, and check the sales performance, procurement cost and repayment ability claimed by the enterprise. From this, the company's business model (involving dealing with the relationship between stakeholders) is evaluated. It is very important to communicate with them about the performance growth of this enterprise in the next two years. Because the sales of many enterprises depend on core distributors or customers, their views on market prospects and their understanding of enterprise competitiveness are often more accurate. Of course, in some industries, there may be a situation that "the demand of original customers declines and the focus shifts to new customers". Case of the third enterprise: When the due diligence staff of a search software enterprise visited its original customers, for example, they generally felt that the existing software of the enterprise had met the demand and did not intend to continue to buy the upgraded version, which was close to the conservative prediction of the entrepreneur, which affected the investment decision. However, after observation, it is found that the entrepreneur has successfully expanded the market space in new fields. 5. On-site communication with entrepreneurs is the top priority. Investment means investing in entrepreneurs, so I won't go into details here. In the past, venture capital institutions and entrepreneurs usually spent three or four months or even six months dealing with each other and got to know each other more. But now, the whole process from understanding, communication, negotiation, transfer to investment is unprecedented concentrated in the face of fierce market competition. Limited contact with entrepreneurs is very important and should be carefully designed. In the process of due diligence, there are cases where key personnel can't get in touch for various reasons, so try to meet on the spot. China's interview failed to capture facial expressions, and the depth was not enough, which increased the possibility of false statements. There have also been cases where key people have avoided seeing it, which is very risky. The fourth enterprise investigation case: a Zhongguancun (stock market, capital flow) third board listed enterprise, such as a Zhongguancun third board listed enterprise, is in a high-tech industry and has monopoly. The major shareholder is a central enterprise, and the possibility of listing is quite high. Some of its minority shareholders are interested in selling their shares at attractive prices. Some venture capital institutions have taken over. However, in the process of due diligence, relevant doubts also surfaced: regarding the details of the plan for restructuring enterprises to eliminate horizontal competition (because it may involve details such as injecting asset quality and pricing), the excuse of enterprises is that the information disclosure of listed companies on the Third Board is close to the requirements of listed companies, and the secretary of the board of directors refuses to meet and communicate. The final plan came out, which turned out to be the merger of major shareholders and competitors belonging to the same central enterprise, and was listed as the main body of the merger, which was unfavorable to the existing three-board enterprises. It can be seen that if investors give up the principle of due diligence in the face of fierce peer competition and make decisions only based on existing information, the losses may be huge. Case study of the fifth enterprise: taking a pharmaceutical company as an example, it is found that the company is fully prepared for the list of materials submitted by venture capital institutions, but the company does not cooperate with interviews with outsiders. Investigators asked to interview sales executives, core drug distributors, key customer distributors and core R&D cooperation units, but the company did not arrange them. In interviews with management team members, investigators found that the ability and quality of team members are average, and they are simply implemented, and their wages have been low for a long time, which seems to be inconsistent with the good indicators reflected in financial statements and other materials. Finally, it was found that the company was suspected of financial fraud and its operating performance was greatly overestimated. Obviously, due diligence is valued, and form and formality are the core. References:

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