VENTURE CAPITAL: 4

INTERNAL REVIEW & GROWTH AUDIT OF BUSINESS

INTERNAL REVIEW
NEEDs:

VCs will conduct through investigation, called Due Diligence, comprises : Business Potential & Prospects as proposed by the Entrepreneur. Entrepreneurs tangible & in- tangible assets Financial Records Systems, procedures & policies in place As VCs expect clean business i.e. no exposure to risks other than identified & declared in the business plan.

TO MEET THE NEEDs:

Initiation of Internal Review for absolute success in getting funds

before VCs come for due diligence. Conduct pre due diligence by Chartered Accountant under the overall guidance of the VC intermediary.

INTERNAL REVIEW: AREAS

1. Ownership Issues.

2. Employment Agreements of the Founders.

3. Employee Issues. 4. ESOP-Employees stock option plan. 5. Intellectual Property Rights.(IPRs) 6. Minutes of Board Meetings and Share Holders 7. 8. 9. 10.

Meetings. Record Keeping. Tax Review and Compliance. Litigation and Contingent Liabilities. Risk Measurement and Insurance.

INTERNAL REVIEW: AREAS

1. Ownership Issues.
A. B. C. D. E. F. G.

Audit Trail of all the shares issued or transferred conform laws , supported with the requisite Minutes of meeting. Trigger Automatic share transfer in case of death or disability Restrictions on share transfers are normal ,reasonable & not automatic No conflict between shareholders agreement & article of association. No Holding of shares by departing founder Up to date share register & no shareholding related disputes. Consent of shareholders in regard to issuance of shares to VC.

2. Employment Agreements of the Founders. Employment contracts for all owners & family members , genuinely

attached Roles, responsibilities and the designation of all the related parties are defined Reconcile & close all owners personal accounts, used for business Clear demarcation of personal & business related expenses

INTERNAL REVIEW: AREAS

3. Employee Issues:

Employee records management system. No Seat of the Pant Concept, instead effective systems & processes. Non- compete & confidentiality agreements , particularly in high tech business relies, on IPRs, including new employees from the Industry. Independent Contractors/ Consultants protects IPRs & are non employee Employees hand book, regulate entire working of employees HR manual(Recruitment, induction , compensation, exit etc) Comprehensive performance appraisal & development system Training/System Manual( Skills up-gradation etc) Familiarization with the basics of ESOP, functioning/legal frame work/ impacts/vesting period. Finding out a suitable Options Pool, desired by the VC Documented plan to put Golden Handcuffs to key performing employees.

4. ESOP-Employees stock option plan.

INTERNAL REVIEW: AREAS

5. Intellectual Property Rights (IPRs)

Develop a working knowledge of the IPR laws ( National/International) Requisite documents (Development/registration) in support of your IPRs Compliance of requisite laws to keep the IPRs valid. Technology audit by specialist IPR lawyers Meetings have been held at the periodicity provided under law Proper notices and agenda have been circulated to all All formalities, like attendance , quorum, election of chairman are adhered to. Decisions taken during the meetings are documented through minutes. All minutes are signed off by chairman or as provided by Article. Filing of appropriate forms/returns with the registrar

6. Minutes of Board Meetings and Share Holders Meetings.

INTERNAL REVIEW: AREAS

7.

Record Keeping:
Statutory Records required as per Companies Act,Relevant Labour Laws, Income Tax Laws Ownership documents of assets(Tangible /In-tangible) Financial Statements and all other related documents Key contracts like JV /Strategic Alliance Agreement with customers/vendors Employment Contracts, past /present employee and independent contractors Insurance Policies Tax related forms , registers, orders & other related documents. Litigation Documents , if any

8. Tax Review and Compliance:

Fully compliance with the tax laws/formalities and timely payments thereof Disputed amount ,if any, to be quantified besides future impact

INTERNAL REVIEW : AREAS

9. Litigation and Contingent Liabilities: Share holders , owners, are involved in legal disputes? Any founder/key employee ever involved in any criminal proceeding Pending Civil/Criminal suits as Plaintiff/defendant in the name of company/owners/key employee and probable consequences. Tangible/intangible assets are under litigation , if any, impact on the business. Company or owners ever been investigated by regulatory authorities. 10. Risk Measurement and Insurance.

All assets for loss or damage by robbery , theft, fire , riots, terror acts, flood etc Product Liability Suits Key employees Insurance Pending Claims by the company & status thereof External claims, covered/ uncovered and status thereof

INTERNAL ASSESSMENT: GROWTH AUDIT

Assessing the overall effectiveness and success thereof, reviews of

the operations of the business, its organization, system, processes and the caliber of the Management are most important. There are many reasons for failure of a business within 5 years of its existence viz lack of money and lack of management expertise The efforts will exhibit proactiveness to VCs. Each of the functional areas need to be evaluated for maintaining growth.
Planning Management Sales & Marketing Operations Finance

Human Resources Management

INTERNAL ASSESSMENT: GROWTH AUDIT

1. Planning: Entails the strategic positioning of a business in the market place , carries Mission & Vision Statement SWOT analysis techniques. Out come of the earlier analysis. Written business plan Practice in Preparation of Annual Budget Variance analysis ( Monthly/Quarterly/Hly) 2. Management Effective Management is the key element in managing growth . Comforts for VCs are, whether Core management team, complete and in place Each member of the team aware of his role & responsibilities Rewards for each role fair, clearly defined and commensurate with the responsibilities The team is cohesive and experienced in managing a growing business

INTERNAL ASSESSMENT: GROWTH AUDIT

3. Sales & Marketing: Effective sales & marketing strategies/ policies provide extra edge in market place to a business and to comprise the following key functions: Experienced employees having demonstrated track record. Documented marketing & sales plan defining objectives and strategies Defined target audience & sufficient for revenue generation Well researched price points for products & services. Documented Price list & discount policy. Customer Feedback process & addressing the same. Monitoring competitors besides understanding their strength & weakness. Products & services are adequately differentiated and duly communicated to customers System in measuring impacts for increased sales or market share. Updated order book taking the effect of monthly booking & targets fixed

INTERNAL ASSESSMENT: GROWTH AUDIT

4. Operations: Production Infrastructure Effective Value Chain Vendor price & payment terms Inventory techniques for managing rapid scale up Monitoring of technology changes Full proof inventory management Process in Maintaining Quality 5. Finance VC expects that money invested should be used wisely & appropriately . Ensure that financial decisions are taken backed by well thought out, conservative & well directed steps. Proper annual plan & monitoring thereof . Requisite risk mitigation system as applicable. Maintaining of information for business valuation Compliance of statutory obligations Prudent working capital management

INTERNAL REVIEW
6. Human Resources Management: HR system and process play a vital role in retaining key employees besides enabling innovation and creativity in the organization. Elements are Updated employee hand book Employment contracts Records maintenance system HR manual comprises recruitment process, induction, roles , responsibilities, exit policy etc Well established performance appraisal systems & procedures Training & development process besides updating skills of employees

The review audit will shed light on the business readiness about the successfully managing the process of growth. Short comings, if any, are to be rectified before inviting VC.

VENTURE CAPITAL

GOOD WISHES TO ALL