Venture Capitals are in a unique position to generate significant new revenue during these hard economic times. The challenge they face, though, is how they assess their next big opportunities. Most VCs are only going to scratch the surface in their due diligence process before acquiring new companies and brands; they will focus too closely on the financials and competitive assessment rather than taking a truly holistic view of the potential of the company and/or its brandscurrently and, most importantly, in the future.

After doing plenty of work with VCs and seeing what worked and what didn’t, here’s what I would make sure NOT TO DO:

–  Don’t just do your normal due diligence from a business and legal perspective. Yes, it needs to be done, but don’t make those your only data points for the decision to acquire or not. It’s too broad and shallow.

 
–  Don’t trust the researchers or their research of the company/brand you are acquiring. They’ve been “in the jar” too long. Do your own custom research to identify the true potential. I would highly recommend ethnographic research coupled with an Economic Value Segmentation.  This will give you the right market sizing data to understand the future potential of the business amongst current and prospective customers.

–  Don’t just throw money at the marketing team and give them marching orders to grow the business. If they could have grown the business you probably wouldn’t be looking at it as a potential acquisition. We've seen some VCs go as far as moving to a completely outsourced model for marketing to ensure complete objectivity. It’s the best way to bring new perspective to the business.

–  Don’t let marketing convince you that a creative approach alone will solve the problem. Hold them accountable from the beginning by giving them metrics. Make them give you an ROI model and then hold them accountable. Too often marketing convinces the board that if they could just do that TV spot they always wanted to do but couldn’t because they didn’t have the budget, everything would be okay. 

–  Don’t get caught up in the innovation buzzwords like “breakthrough,” “groundbreaking,” “earth-Shattering” blah, blah, blah. At the end of the day, make sure the team clearly articulates the need/insight, the idea and the communication that connects them together. If they can’t convince you of all three, tell them to go back to the drawing board. 
 

If you don’t fall into any of the traps I listed above, you will be well on your way to generating significant ROI. Good luck!

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