When private equity firms evaluate a company for investment, understanding the company’s future plans is a vital part of the Technical Due Diligence (TDD) process. Investors are not just interested in the present state of the company but regard both the future plans, and the structure that surrounds them, as critical parts of the investment strategy.
What are these plans, what do they cover?
Evaluating future plans involves examining a company’s strategies for growth, innovation, and sustainability. It includes understanding the company’s vision, the resources allocated for future projects, and the anticipated outcomes of these initiatives.
During a TDD, you can expect to be asked for everything that’s been delivered in the previous 12 months, and a detailed plan of the next 12–24 months. In addition to this, having broader plans that show the general direction of travel extending out 3–5 years helps to enhance investors’ understanding and the vision the founders have had for the company’s growth.
Why is talking about the future important?
Investors need to know if the company has a clear and achievable growth strategy. Companies with solid plans for expansion and development are more attractive to investors. A company’s ability to innovate and adapt to new technologies and market trends is crucial for staying competitive and investors look for plans that demonstrate a commitment to continuous improvement and innovation.
Operational efficiency is illustrated by effective planning that involves allocating resources wisely alongside day-to-day business functions. Investors want to see that the company has the necessary resources and agility to support its future projects.
Planning for the future includes anticipating potential risks and challenges. Investors seek evidence that the company has considered these factors and has strategies in place to mitigate them.
What documents do Investors look for to understand our plans? What will I be asked?
Strategic Vision
Questions:
What is the company’s long-term vision?
How does the company plan to achieve its goals?
Are there specific milestones and timelines outlined?
Evidence:
Strategic planning documents and vision statements.
Roadmaps outlining key milestones and timelines.
Presentations or reports detailing future goals and strategies.
Innovation and Development Plans
Questions:
What new products or services are in the pipeline?
How does the company plan to stay ahead of industry trends?
What investments are being made in research and development?
Evidence:
Product development roadmaps and innovation plans.
Records of investment in research and development (R&D).
Case studies of past innovations and their outcomes.
Resource Allocation
Questions:
How are resources (financial, human, technology) allocated for future projects?
Are there plans for hiring or training staff to support growth?
What budget is allocated for future developments and expansions?
Evidence:
Budget documents and financial plans.
Staffing plans and training programmes.
Resource allocation charts and reports.
Market and Competitor Analysis
Questions:
How does the company plan to position itself in the market?
What strategies are in place to outperform competitors?
How does the company plan to respond to market changes?
Evidence:
Market analysis reports and competitor benchmarking studies.
Strategic marketing plans and positioning documents.
Records of past market performance and adjustments.
Risk Management Strategies
Questions:
What potential risks have been identified for future projects?
How does the company plan to mitigate these risks?
Are there contingency plans in place?
Evidence:
Risk assessment reports and mitigation plans.
Documentation of contingency plans and backup strategies.
Records of past risk management successes and lessons learned.
Investors like to see detailed strategic and innovation documents that outline the company’s future plans. These documents provide insights into the company’s vision, goals, and the steps planned to achieve them. Conversely, where these are not possible, the investors in combination with the TDD authors will often infer plans, create a broad structure around these and plan forward on that basis. However, if this is the case then the company has lost agency in defining its own forward-looking plans.
Budget documents, financial plans, and resource allocation charts are crucial. These provide a clear picture of how the company plans to finance its future projects and allocate resources effectively.
As a part of overall product management, market analysis reports and risk assessments show that the company has thoroughly researched its market position and anticipated potential challenges. This demonstrates a proactive approach to future planning and risk management.
Evaluating future plans is a crucial component of a TDD, the focus of conversation shifts firmly from “what is present today” towards “tomorrow”. Investors need to ensure that the company they are considering has a clear and achievable vision for growth, innovation, and sustainability. For company founders, presenting comprehensive strategic plans, resource allocation documents, and risk management strategies is critical in making the company appealing to potential investors. Demonstrating a well-thought-out plan for the future will enhance the company’s attractiveness to investors and make it easier to secure the support needed to achieve long-term success.