Pre-Investment Market Due Diligence
Companies seeking investment are by their very nature optimists. They see an enormous market opportunity for their business and build hockey stick projections that match their enthusiasm.
As an investor, you need hard facts on the market to cut through the hype and make your own growth assessment. You need to answer the following questions in an objective and quantifiable manner:
- How big is the total available market?
- How quickly are customers adopting and/or replacing solutions?
- How does the company stack up against competitors?
- Are there any hidden obstacles that might get in the way of success?
- What are the upside opportunities that may enable the company to over-perform?
Topline’s Market Due Diligence Methodology
In general, our approach includes the following three modules:
- Sales Chain Analysis: In Sales Chain Analysis, we conduct interviews with a wide variety of accounts covering all stages of the sales cycle and then supplement it with quantitative analysis of the company’s sales experience and secondary research into the market and completion as required. Understanding the behaviors of different accounts stage-by-stage enables a thorough understanding of the market, which, in turn, determines whether a company can achieve its revenue goals.
Sales Chain Analysis: Gaining Insight into the Market by Interviewing Accounts across the Sales Chain
- Market Segmentation & Sizing: We then segment the market to align with the company’s market dynamics. Segmentation may be based on customer size, industry, or more often, other factors that affect the opportunity. We will then estimate the size of each segment.
- Revenue & Market Penetration Modeling: Based on the tasks mentioned above, we will create a likely revenue and market penetration model and evaluate the company’s revenue projections within the context of the model. The model is forward looking and typically includes an assessment of the annual available market as well.
With these deliverables at hand, Topline will provide an opinion to you on the likelihood that the company can meet its growth targets, the inherent risks, and the potential upsides.