Impact Investment: A Practical Guide to Investment Process and Social Impact Analysis

CHAPTER 3

Investment Analysis and Valuation

While the company Solero made it through a rigorous sourcing and screening exercise, it is still at a nascent stage in the overall investment process. The next phase is to perform a bottom-up analysis of the company to understand business drivers and how the company would be expected to perform under various scenarios. This process leads investors to determining their opinion on the valuation of the company and investment structure, which is critical to the negotiating phase.

INFORMATION EXCHANGE

The inception of the pre–due diligence phase is marked by a deeper level of engagement between the investor and the potential investee. As the frequency and depth of information exchange increases, it is very important for both parties to understand the level of commitment each party is bringing to the process. Often, allusions to marriage are used for the relationship between an investor and an investee. This metaphor is actually fairly accurate, as leading up to the big commitment there is a period of courtship and dating. The further each party moves along the courtship, the more time and energy are invested in the relationship. However, for investors and investees, the consequences of breaking off the relationship can be more material than a broken heart.

Investors are looking to place their money in an efficient manner. The longer it takes to invest that money, the more drag there is on potential return. Exiting investments often take a ...