Due Diligence

Before You Start Your Start-Up

Excerpted from Digital Coast Reporter - Volume 3, #04 - November 8, 2000

DUE DILIGENCE

Before you start your start-up, learn everything you can about your market opportunity.

ANNA DORFMAN

Start-ups in the newly down-to-earth economy—caught in the wake of the April Nasdaq drop—need more than vision; they must prove their right to exist, with hard data and business savvy, to a venture capital community on guard. Mastering the art of due diligence, the process of researching the viability of your business plan, will ensure a new enterprise health, wealth and long life.

Riggs Eckelberry, Managing Director at Santa Monica-based NetCatalyst, which specializes in executing national and multi-national IPOs, mergers and acquisitions, noted, "Any category of technology has huge momentum today—[and] can be over before [it] starts." To maintain momentum and prosper in the due diligence game, dot-coms need to investigate two major issues: market risk and barriers to entry.

... Companies must determine what differentiates their technology, how easily it can be copied and whether it steps on any existing patents. In terms of competition...the challenge for dot-coms is to "narrow focus" until they find a subcategory or niche in which they can be number one.

Eckelberry warns start-ups to "preserve maximum equity" and establish themselves with barter deals; to avoid high-burn rates and outsourcing costs too early; to run thorough employee checks; and to not rely on big names from off-line businesses not schooled in the very different dot-com business culture...