Due Diligence Flashcards
What is due diligence?
A comprehensive evaluation conducted before investing in, acquiring, or licensing a company/project.
Why is due diligence important?
Ensures investors, companies, and stakeholders make informed decisions based on scientific, financial, legal, and operational data.
What are the two main types of due diligence?
- Buying a Company or Licensing a Project – Internal check on scientific assumptions & asset value.
- Investing in or Creating a Company – Internal & external evaluation to confirm valuation & risk.
What are the 4 Pillars (4 P’s) of Due Diligence?
- People – Team, leadership, expertise, culture.
- Performance – Financials, revenue, historical data.
- Philosophy – Business model, core strategy.
- Process – Governance, operational frameworks.
What is the Death Valley concept in therapeutics?
High probability of failure before revenue generation, requiring milestone-driven funding to survive.
What are key funding milestones for startups?
- Preclinical toxicology data.
- Clinical trial results (Phase 1–3).
What is the difference between Milestones & Tollgates?
Milestones – Achievements that indicate progress (e.g., PoC data).
Tollgates – Go/no-go decision points based on key risks.
What are key value-adding steps in drug development?
- Pre-Company Formation – Identify promising scientific research.
- Company Formation – Patent filings, seed funding.
- Preclinical Development – PoC data in animals, lead optimisation.
- Clinical Development – Phase 1 safety, Phase 2 efficacy.
- Commercialization – Licensing deals, market access.
What factors truly add value in biotech?
- Validation of disease targets.
- Optimized chemistry & lead identification.
- Clinical proof-of-concept (PoC).
- Regulatory approvals (e.g., FDA IND).
What are the funding stages in biotech?
- Pre-Seed – Early-stage grants (£<1M).
- Seed – Company formation (£1M–£5M).
- Series A – Preclinical to early clinical (£10M–£50M).
- Series B/C – Late-stage clinical trials (£50M–£200M).
- IPO/Exit – Public market funding or acquisition (£200M+).
What do venture capitalists (VCs) expect?
3x–10x ROI within 10–12 years.
What are key focus areas for investors?
- Team quality.
- IP protection.
- Regulatory progress.
- Competitive landscape.
- Exit strategy (IPO, M&A, licensing).
What is Scientific & Clinical Due Diligence?
- Scientific backing (peer-reviewed data).
- Key milestones (target engagement, animal efficacy, Phase 1 safety).
- Differentiators (comparator data, unique MoA).
What is People Due Diligence?
- Does the team have the right skills?
- Are there leadership gaps?
- Are investors aligned with the company vision?
- Is the board composition strong?
- Are key hires planned?
What is Commercial Due Diligence?
- Competitor landscape.
- Revenue potential.
- Partnerships in place.
- Potential acquirers or licensees.
- Estimated valuation.
What is Legal & Governance Due Diligence?
- Are contracts in place?
- Is the company compliant with GDPR?
- Does the company have board oversight?
- Are employment contracts structured correctly?
What is Financial Due Diligence?
- Company cash position.
- Liabilities.
- Expected runway before additional funding.
- Tax efficiency (EIS, R&D tax credits).
What is IP Due Diligence?
- Patent protection, trade secrets, licenses.
- Freedom to Operate (FTO).
- Protection from competitors.
- Proper assignment of IP rights.
How is valuation calculated?
Pre-Money Valuation: £5M + Investment Raised: £5M = Post-Money Valuation: £10M.
What are common investment terms?
- Vesting (4 years).
- Anti-dilution protections.
- Restrictive covenants.
- Preferred shares.
- Liquidation preferences.
- Warrants & Convertible Notes.
What are the top reasons for investor rejection?
- Valuation misalignment.
- Lifestyle business (not VC-fundable).
- Difficult founders (poor communication, unrealistic expectations).
- Lack of preparedness (no clear milestones/strategy).
What are key daily activities of a VC?
- Reviewing portfolio updates.
- Evaluating new investment pitches.
- Conducting due diligence.
- Networking with other investors.
- Attending board meetings.
- Tracking market trends & competitors.
What are the 5 key lessons from due diligence?
- Due diligence reduces risk & validates investments.
- Startups need strong scientific, financial, and legal prep.
- Investors focus on leadership, IP, and exit strategy.
- Milestone-driven funding is crucial.
- Investor-founder alignment is key for success.
