Business process overview and due

diligence checklist to assess new business

opportunities
Foundations that fund research increasingly have and are taking the opportunity to fund
companies, particularly (though not exclusively) small, early-stage companies that have difficulty
raising capital elsewhere. Foundations feel acutely responsible for the stewardship of resources
from donors small and large, and must engage in a rigorous process for making these decisions.
We offer these tools and insights from TRAIN (The Research Acceleration and Innovation
Network) members to assist in that process.

Most foundations engaged in this type of venture philanthropy concur that involving individuals
with expertise in business development – whether on staff or outside consultants or expert
volunteers – as well as legal counsel in this process is a necessity.

1. Process. What are the steps involved in making investment decisions, and who should be
involved?

2. Evidence/Documentation. What specific information might you require of a potential

technology?

3. Decision-making Criteria. What are the factors that influence a final decision
positively or negatively? Summarized of diligence questions, outlined below:
 Does this address an unmet need, or is this a crowded area supported by others?
 What is the quality of the science and the asset, and what is the level of innovation?
 What is the degree of competency and enterprise readiness of the business?
 What will be the value-add of involving other stakeholder as a partner?
 Is this project a strategic fit?
 Is there a potential for a return on investment?
 Finances stable enough to see the company through the project;
 A reasonable business model and exit strategy (out-licensing, IPO, acquisition,
co-development deal);
 A management team with the appropriate experience to move the project through to
its value inflection point; and
 The right intellectual property package to support the exit strategy.
 Overview of Process

Phone contact to discuss science,

intended population, stage of
development, and potential

No
Interested?

Yes

Compare against the product landscape

and project prioritization

Yes
No
Interested?

Yes
Request written scientific proposal or
in-person presentation to staff and domain experts
(depends on stage of development – late stage in-person)

Meet management in person, Send out for external Send out for SAB
visit performance site(s) written reviews review

No
Interested?

Yes

Undertake feasibility
studies

Board presentation

Yes No
Fund Board
 Due Diligence Checklist for Co-Funding Discussions

1. Documents
a. Company financials: Has the business reviewed the financial status of the company and
understood what funds it has available, their source, and both current and future
anticipated cash flow?
b. License/option agreements if applicable
c. Other applicable agreements: e.g. Is there anything else the technology is dependent
on? Manufacturing?

2. Intellectual Property (IP)

a. Current IP assessment: Has the business received a legal opinion on IP and freedom-to-
operate (FTO)? (A full FTO search is very expensive and not usually appropriate; however,
a higher level review of key issues and legal opinions is sought.) Attach written opinions
from company counsel. Summarize conclusion – Is there a clear path? What are the most
likely risks? What licensing is required?
b. Prosecution plans for existing IP globally
c. New IP: Will the investment help develop new IP? Does the investor have walk-in rights if
the IP is not used or licensed? Does the business benefit from licensing of IP it co-
funded?

3. Development Plans
a. Overall development and plan with costs, timelines, milestones, deliverables, and
go/no-go decisions
i. Target Product Profile and current stage of development. What is known about
the mechanism of action or pathway involved? Is there any efficacy or safety
data? Validity and relevance of any animal models used. Is the route of
administration clear? Is there any formulation data? What is the anticipated
timeframe to legal licensing?
ii. Primary use of funding, definition of deliverables along with milestones and
payments at each milestone, anticipated stage of development upon funding
termination, likely need for additional funding at the end of the project
iii. Who is, or might, co-fund this project?
iv. Technological development path – phase, randomized, blinded, study objective,
timeline, primary and secondary outcome measures, estimated enrollment,
eligibility
v. Reproducibility and validation
b. Overall commercialization plan
i. Product category and name
ii. What is the nature of the product and its intended use?
iii. Product market size (company and foundation perspectives). This is further refined by
understanding the stage of disease that can be targeted, the size of that more
targeted population, whether the therapy will slow, stop, or reverse disease.
Formulation can impact numbers – daily usage represent more product sales
than a once a month therapy for instance
iv. Product cost
v. Does the foundation have a clear understanding of how the product would fit into
the existing commercial landscape?
 vi. Competitive landscape analysis: Competitors, their similarities and differences,
strengths and weaknesses, stage of development

4. Regulatory
a. Overall regulatory plan by country
b. Name of regulatory counsel
c. Comments on any FDA interactions to date: Nature of the meetings, topics discussed,
outcomes, any written feedback provided by FDA

5. Human Resources at the Group to Be Funded

a. Internal team members, backgrounds, status (employee/contract)
b. Contract groups being considered (contract research organizations, distributors, etc.)
c. Has foundation met face-to-face with senior management? Details and impression

6. Commercialization/Exit Plans: Does the company have the capability to commercialize? If not,
what is its exit strategy?
a. Plans beyond foundation funding. Attach company business plan.
b. Introduction dates
c. Sales projections by territory/indication
d. Average selling prices/cost of goods
e. Profit and loss/net present value assessment