How red is the flag on a very young target company?

by a searcher from Columbia University - Columbia Business School

4 months ago

Concisely: How Red is the Flag?

I am in a pre-LOI stage with a company that checks a lot of our boxes: Recurring revenue, low capital intensity, industry experience... However, the company is only 2 years old. I am interested to hear your opinions on how red is the flag, and what would be key things you would look into, apart from the obvious "why sell?" and "it could disappear as quickly as it appeared".

Thanks!

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19 comments

searcher from Howard University

I think ^Searchfunder member‌ is correct. Go very heavy on earn-out. The seller should understand that the lack of history will make financing tough. But, it sounds like your risk radar is going off, I think it will be hard to get over that nagging feeling even if you get the earn-out structure you want.

4 months ago | like reply | 2 likes

searcher from University of Toronto - Joseph L. Rotman School of Management

Based on your comment above, the visionary created a growing business w/a scaling team in a niche w/a clear GTM strategy. My questions would be: does this situation fit into your risk profile and is this an opportunity you're excited about (meaning, is this the best investment opportunity on your desk)? If yes and the visionary is staying involved - because it's their baby - this could be a very good opportunity. Cheers, Scott

4 months ago | like reply | 1 like

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