Evaluating a prospective investment requires getting to know a company over time. There are four main stages of evaluation:

a) The “first read” (which can be an instant reaction to determine whether the deal matches the firm’s strategy),

b) The first meeting (in which the team can be evaluated in person or over the phone, and questions can be asked about the company’s resources and business plan),

c) Preliminary due diligence (which includes assessing whether there is a market for the company’s solution, competition, basic financial analysis, and initial customer and management references), and

d) Full due diligence (a deeper dive into all aspects of the company’s operations and plan, culminating in an “investment memo” or “investment decision” presentation for approval by the partnership). It’s normal to identify possible deal terms, including valuation, to complete an investment memorandum.

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