Implementation Process

CD Ventures’ management team generally spends up to six months, researching and analyzing a target industry's suitability for an investment. For the firm to commit to pursuing a project requires: (i) a qualified CEO with a proven track record; (ii) affirmative confirmation that the industry characteristics support the project; (iii) a complete business plan championed by a CD Ventures Partner, with a detailed financial model that demonstrates the return targets to be expected from the venture; (iv) specific validation of pricing assumptions and strategic approach through structure letters or letters of intent with potential sellers; and (v) unanimous approval by our Managing Partners. Once a project has been approved, we establish a team headed by a Partner who initiates the implementation process for the venture with the CEO of the newly created company. The process generally proceeds as follows:

Corporate Organization & Equity Investment by Partner Funds: Corporate formation and the initial equity investment by CD Ventures and our “partner funds” take place concurrently. Once a transaction with a signed Letter of Intent has satisfactorily passed due diligence testing, the closing process is generally initiated by forming a corporation that will serve as the holding company for the venture. Generally, a Delaware C-corporation, or an LLC is formed, based upon agreements reached during the transaction approval process. Founders stock is issued to the management team (including the CEO and CD Ventures for their role as founders) representing 20% of the equity with the balance of the ownership issued to our equity partners (and CD Ventures) in exchange typical private equity securities based on capital invested. (Subsequent to closing the initial transaction, an employee stock option plan is adopted, generally representing 10% of the fully diluted ownership of the company, to provide incentives for the balance of the management team.)

The equity investment may take the form of: (i) convertible preferred stock; or (ii) common stock along with redeemable preferred stock. The proceeds of this financing are used to purchase the target company (or companies), which in the case of a consolidation opportunity serve as the platform operation. The acquisition of the platform company is also financed with senior debt and subordinated debt.

Secondary Rounds of Financings, Acquisitions and Outside Equity Investment: CD Ventures, under terms of a market priced advisory agreement, continues to manage the corporate development and capital formation activity on behalf of the portfolio company. Key areas supervised by CD Ventures included deal origination and structuring, proforma cash flow forecasting and modeling, acquisition due diligence, and covenant compliance. As additional equity is required, current shareholders are solicited for interest in investing additional capital or other private equity partners are brought into the venture. Sufficient equity is invested to maintain the appropriate balance between equity and debt necessary to establish prudent financial leverage.