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Evaluating - Should You or Shouldn’t You

Recently, one of our clients stated, that he had been making some investment decisions that now seemed dubious. We sat down and reviewed his portfolio of primarily “Angel Investments”. We then went out to meet the leaders of some of these ventures. During these meetings, I found myself thinking that these leaders did not have a simple strategy for success, and they usually were not able to answer some critical questions.

I started doing a SWOT analysis on their businesses; I realized that there are only six directions that the leadership of a venture can opt to take. Subsequently, I said to myself, what are the initial screening criteria that I would use each time, to see if the leader had really done the necessary homework and is properly prepared? Only one of the actions below can be applied, and each question is directed to determining the readiness for action in a particular business situation.

The leaders must have a clear-cut plan, if they cannot answer the basic five questions in each strategy, a stakeholder should not consider involvement. As an overview the strategies are:

  1. Invest to Penetrate: We will invest to grow our business by increasing it in our current markets. (Fight)

  2. Invest to Rebuild: We want to reestablish our presence because we have the resources and opportunity to do so. (Fight)

  3. Diversify: We are in a position where we can redeploy our assets into another area where we can be in a dominant market position. (Fight)

  4. Invest to Hold: We have the resources to take on one of the other strategies we are just not fully ready to determine which one. (Freeze)

  5. Harvest: We have a market position now, it will decline, our best strategy is to “cash cow” the venture and maximize the stakeholders’ exit position as cash flow becomes negative. (Flee)

  6. Exit: The market has collapsed, we are best to sell off our assets and this is how we propose to do that. (Flee)

Questions to ask for each strategy

Invest to Penetrate

Initial Screening Criteria

  1. Can the venture take the #1 or #2 share in its market segment in a predetermined timeframe?

  2. Does the plan to gain #1 or #2 have substantiated market research?

  3. Have the leaders a well-defined plan with “go/no go” criteria?

  4. Does the organization have the human capital needed to succeed?

  5. Do you trust their numbers, and do they substantiate your investment rate of return?

Invest to Rebuild

Initial Screening Criteria

  1. Does the market research show a well-defined opportunity?

  2. Are the “Key Leverage Issues” addressed in a practical approach?

  3. Is the cash flow forecast complete for the term of the rebuild?

  4. What are the benefits (9) of sinking more money into the venture?

  5. What will the leadership do once success is reached (success is #1 or #2 SOM)?


Initial Screening Criteria

  1. Is there market research that shows the product or services can be deployed into another market?

  2. How will the current assets be used or reconfigured?

  3. Is there a formal set of financial and business development plans ready?

  4. Has a “go-to-market map” been created (Integrated, SMA, and License)?

  5. What is the Return On Assets?

Invest to Hold

Initial Screening Criteria

  1. What are the compelling reasons (9 minimum) for moving to a hold status?

  2. How long will the hold last and what is the expected outcome?

  3. What is the action plan to be implemented after the hold?

  4. Which of the Penetrate, Rebuild, Diversify, Harvest, or Exit actions will take place and when?

  5. Can a well-defined ROI be explained for those who invest in the hold?


Initial Screening Criteria

  1. There are tangible assets that can be acquired by whom and why?

  2. Is there a cash flow forecast that shows the decline to negative cash flow?

  3. Is there a sale of assets plan in place?

  4. Why do the principals want out of the venture?

  5. Could it be sold as a “going concern” now and would the principals take a VTB?


Initial Screening Criteria

  1. How will assets be disposed of and by whom?

  2. Are there any potential acquirers of the assets?

  3. What will be the impact on investors?

  4. What is the timeline to close down?

  5. How will any investment be returned first from the liquidation of the assets?

Do you have questions, concerns, or suggestions? Feel free to leave a comment or contact us for more information!

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