VC Due Diligence: Will your Sales Organization Make the Cut?

December 7, 2011

In a way, we’re all somewhat savvy, experienced investors. We buy real estate, stocks, or other forms of securities hoping that we’ll net a financial return that funds our lifestyle, retirement, or – sorry to mention it – kids’ college bills years down the road.

And what do we all do before we make those big investment decisions?

If it’s a home, we research the neighborhood and schools, look at the property’s layout, location, and finishes, and ultimately make certain that the house we’re buying won’t turn into a money pit that eats away at our future ROI.

Essentially, we want to be sure that we’re putting our money into something that is what it says it is. And we want to confirm our hunch that it could ultimately prove to be a wildly successful investment.

In the world of venture capital, we go through the same process. We just call it due diligence.

Yes, as an entrepreneur or expansion stage founder, you’ve probably been through it before. And as OpenView’s Nick Hammerschlag details on his blog, due diligence can sometimes be an arduous process that takes weeks or months to complete.

It usually involves a deep dive into your company’s customer, financial, and market data, and your sales and marketing team, processes, pipeline, and forecasts. No stone is left unturned, which is good for both the investor and the investee. After all, a poor investment decision can ultimately harm both participants.

The good news? If your processes are buttoned up, your data is accurate, and you’re following through on your promises, due diligence should be nothing more than another standard step on your path toward acquiring growth capital.

So, how can you be sure that you’re well prepared when the due diligence process begins?

Over the next few weeks, I’ll be focusing specifically on the sales due diligence process, what expansion companies can expect during it, and how they can make it a painless experience when they ultimately partner with a VC. Here’s a brief outline of the topics I’ll discuss:

  • Target market segments that support rapid growth
  • Key understanding of buyer personas and the buying process
  • A sales organization and process that maps to the buying process
  • Forecast and pipeline review that shows substantial revenue potential

The bottom line is that VCs want to see a clean, well-organized sales organization and the potential to continue scaling on the previous success a business has experienced. And remember, at the expansion stage that means real revenue. Not ideas that could lead to revenue.

The bottom line is that sales due diligence is all about fact-based, objective validation. Just like someone buying a home, we want to invest in companies that are built on a solid sales foundation – not a house of cards that could crumble the instant we sign a contract. So the more buttoned-up and prepared your sales organization is for that due diligence process, the easier it’ll be to prove to us that you’re worth investing in.

For a full checklist on what to expect from the full due diligence process, check out my colleague Firas Raouf’s post here. Otherwise, stay tuned!

SVP Marketing & Sales

<strong>Brian Zimmerman</strong> was a Partner at OpenView from 2006 until 2014. While at OpenView he worked with our portfolio executive teams to deliver the highest impact value-add consulting services, primarily focused on go-to-market strategies. Brian is currently the Senior Vice President of Sales and Marketing at <a href="">5Nine Software</a>.