This overview analysis is the first aspect of our due diligence and assesses why a business a model is likely to succeed, how it provides a perceived value to the customer vis-à-vis their alternatives, and the strength of the economic model for not only the core business but affiliates down the chain, such as its distributors, retailers and customers. If we are not clear and confident in the fundamental story of how this company makes money, mitigates risk, establishes competitive advantage, and is positioned to not only be sustainably profitable but also highly scalable, then we will not further consider an investment.

In assessing the markets, we review how the company has segmented them and how they have validated the value perceived by these targeted markets. We assess their growth strategy by reviewing their plans to increase business with existing customers, new customers in existing markets, and new markets, in new countries and/or in new segments.

We assess how the company compares with direct competitors as well as alternatives that are available to the target customers. Businesses frequently ignore the fact that the most often chosen alternative to their product or service is simply doing nothing, or sticking with the status quo. On that basis, we assess not only why a company believes they have a better mousetrap but, more importantly, why is it perceived by the target customer to be sufficiently better in order to overcome their pain, cost and overall risk of switching.

There is no value created if a company cannot convince others to spend money on their products or services. We assess not only who the target markets are but also how the company plans on contacting them, communicating their value proposition, overcoming inertia to induce trial, and how to convert them into a repeat customer. With scalability in mind, we then follow that up with how they plan on replicating that with all other target customers in their target markets. Whether it is a direct sales force, a broker or distributor network, retail model or an e-commerce approach, the ability to create and grow sales, with strong retention, will be the most critical factor in a company realizing its growth goals.

The financial analysis of a company is the scorecard that reflects the viability and reliability of the growth plan. While a management team may have a grand vision and articulately and effectively extol its virtues, it is ultimately the financial reports, key performance metrics, and planned pro-forma that are a true reflection of the likelihood for success. If a potential portfolio company does not have financial results and pro-forma that support their growth plans they are not viable candidates for VPEG investment.

Once we have a clear understanding of the fundamental growth plan, the pro-forma projections and the company’s capabilities, we are then able to properly assess their capital plan. Growth companies almost invariably underestimate their need for capital and, if not identified and planned for, this lack of available capital often spells the demise of otherwise great companies with tremendous potential. Here, quite critically, VPEG is often able to assist the company, not only by providing favorable capital in the near term, but also by providing them with access to follow-on capital.

All told, we evaluate the alignment of the target investment’s strategy, key initiatives, annual, as well as long-term, goals, key metrics, annual plans, performance incentive programs and monthly review processes, among others. By evaluating both the processes and the results of the company, VPEG is able to best understand if a company has a penchant for action, a commitment to pursuing bold goals and has adopted a culture of accountability, all critical to success.

Importantly, we evaluate the company’s likelihood of achieving their planned exit strategy. VPEG gravitates toward those companies that have a clear ability to create value such that is strongly appealing to a number of potential suitors; whether it be a competitor, strategic buyer, or equity group, or as a “go public” alternative.

Although it is cited last in this list, this is the singular most critical determinant of a company’s success. The critical attributes we look for are a management team’s ability to determine a strategy, align resources toward executing that strategy, deliver results and pivot when necessary. Underlying the ability to be successful are two vital facets – integrity and “coach-ability.” Those who either lack a moral compass or are so arrogant that they won’t accept input are not individuals with whom VPEG will team.