Securing investor confidence demands a transparent, well-structured portrayal of your business’s financial health—and that’s precisely where APCALLP’s due diligence & transactional services excel. As one of the leading due diligence service providers in India, we guide entrepreneurs through every twist and turn of the financial due diligence process, from what is included in financial due diligence to refining your investment valuation story. In this case study, learn how we partnered with a mid-sized auto-technology startup to diagnose ERP gaps, optimize pricing, shore up RBI compliance, and present a compelling total value proposition to potential backers.
Case Overview
When our client—a Bangalore-based automobile-technology startup—decided to raise Series A funding, they encountered a common challenge: the lack of internal visibility into their financial and operational backbone. Early investor conversations stalled because the startup couldn’t confidently answer basic questions about revenue recognition, cost structures, or statutory filings. Without a clear valuation in business framework, potential backers balked at making binding commitments, prolonging negotiations and damping enthusiasm.
The company had grown rapidly. Their innovative sensor technology and after-market service platform attracted strong market interest, but back-office processes hadn’t kept pace. The ERP system was under-configured, department-level workflows weren’t linked to financial outcomes, and key documentation—board resolutions, cap tables, and GST returns—lacked timely updates. Compliance with RBI rules on FDI/ODI compliance and Registrar of Companies (ROC) filings was inconsistent, raising red flags during preliminary investor calls.
Recognizing these gaps, the leadership team engaged APCALLP to deliver an internal financial due diligence—a specialized engagement that sits between coaching and a full third-party audit. Our goal as their transaction advisory services consulting partner was to map every process, rectify compliance lapses, and recalibrate the pricing strategy to reflect true cost inputs. By embedding CFO consultants and chartered accountants into the project team, we delivered a unified lens on governance, controls, and performance metrics.
In parallel, our advisory & transaction services group prepared a detailed financial due diligence checklist, ensuring that nothing slipped through the cracks. We built a structured narrative around investment value proposition—from net working-capital needs to margin drivers—so that the startup could walk into investor meetings with confidence. Within eight weeks, the company closed their Series A round at a 35% premium to initial offers, a testament to the strength of a well-executed internal due diligence process.
Case Scenario & Issues
To streamline our diagnostic, we organized the engagement around five critical pillars. Each pillar uncovers a distinct challenge encountered by the auto-tech startup:
- Internal Visibility & Process Mapping
The client’s departments—R&D, manufacturing, sales, and customer support—operated in silos, with minimal linkage to financial records. Without this alignment, management struggled to quantify the cost-to-serve each product line, a key input for any valuation meaning exercise. Our team conducted over ten in-depth interviews with department heads, overlaying their workflows onto the ERP-generated data. The result was a unified process map that illuminated bottlenecks, double-entries, and unrecorded overheads. With this clarity, the startup gained actionable insights into true cost drivers and set the foundation for accurate investment valuation modelling. - ERP System Gaps
A misconfigured ERP meant sales orders, inventory movements, and expense allocations weren’t feeding into financial statements correctly. Our due diligence & transactional services team performed a comprehensive system audit over two days on-site. We identified missing ledgers, unmapped cost centers, and inconsistent chart-of-accounts structures—issues that had caused misstatements in monthly management reports. By standardizing master data, re-defining accounting cycles, and training key users on ERP best practices, we improved data accuracy from under 80% to over 98%. This upgrade was critical for generating reliable net valuation metrics and providing investors with a clear P&L narrative. - Pricing Model Weaknesses
Initially, pricing decisions were driven by market benchmarks rather than internal cost structures. While competitive, this approach obscured margin volatility and risked underpricing high-value features. Our transaction support services introduced a cost-plus pricing model, tying direct labor, material costs, and allocated overhead to each product SKU. We developed a dynamic pricing sheet leveraging Excel and ERP data, enabling real-time updates and scenario planning. As a result, the startup boosted gross margins by 12% on flagship products and could justify higher valuation multiples based on sustainable profitability—and present a stronger financial planning value proposition to investors. - Regulatory and Compliance Oversights
The founders had overlooked key RBI guidelines governing FDI/ODI transactions and fallen behind on GST reconciliation and ROC annual filings. These omissions posed material risks in any transaction due diligence review and could have triggered regulatory penalties. APCALLP’s advisory transaction services team conducted a systematic filing audit, identified gaps—such as unreported share-issue details and unclaimed input-tax credits—and liaised directly with legal counsel and tax authorities. All regulatory filings were brought current, and a compliance calendar was instituted to prevent future lapses, bolstering the startup’s credibility in the eyes of sophisticated investors. - Documentation and Governance Deficiencies
Key corporate records—board resolutions approving capital raises, employee stock-option plans, and cap tables—were outdated, causing confusion during shareholder discussions. This lack of governance rigor undermined initial investor calls. Our deal advisory services professionals organized a governance-deep dive: updating board minutes, re-issuing cap-table statements with detailed shareholder breakouts, and drafting comprehensive financial due diligence checklist documentation guides. By consolidating these artifacts into a secure data repository, the startup could demonstrate an organized, transparent governance framework, essential for corporate valuations and post-deal integrations.
Our Approach: Professional Workflow & Perspectives
- Kickoff & Scoping
• Initial workshops with founders and the finance team to align on what is included in financial due diligence and define project scope.
• Delivery of a detailed project plan, timelines, and milestone metrics—ensuring everyone understood deliverables and resource commitments. - Diagnostics & Deep Dives
• On-site ERP system evaluation and departmental interviews for hands-on process mapping.
• Parallel audit of regulatory filings (RBI, GST, ROC) and corporate governance documentation. - Solution Design & Validation
• Develop revised pricing models, financial projections, and working-capital forecasts in collaboration with financial services consultants.
• Validate improvements through scenario analysis, sensitivity testing, and management sign-offs. - Implementation & Training
• Pilot ERP configuration changes with the finance team to ensure seamless posting.
• Conduct targeted training sessions for department leads on new workflows and compliance calendars. - Reporting & Investor Engagement
• Prepare a comprehensive internal due diligence report highlighting findings, risks, and recommended actions.
• Facilitate investor workshops, presenting the startup’s enhanced investment value proposition and fielding real-time inquiries.
Outcome
- All compliance gaps—RBI, GST, and ROC—were closed, eliminating regulatory showstoppers.
• A robust cost-plus pricing framework improved margins and underpinned a more compelling corporate valuation.
• The startup raised its Series A round at a 35% premium to initial offers, with key APCALLP recommendations embedded in the Shareholders’ Agreement (SHA).
• Investors praised the transparent documentation and strong governance, setting the stage for future growth capital.
FAQs
- What does financial due diligence do in an M&A transaction?
Financial due diligence validates historical performance, uncovers liabilities, and confirms the accuracy of earnings—a foundation for credible investment valuation. - What is included in financial due diligence?
Typical components include audited financial statements, quality of earnings reports, working-capital analyses, ERP data mapping, and tax-compliance reviews. - How does transaction advisory services consulting differ from standard audit services?
Transaction advisory services combine audit rigor with strategic guidance on pricing, tax planning, regulatory compliance, and integration roadmaps—even before external investors review the data room. - Why engage due diligence service providers in India for an internal review?
Local providers bring on-ground regulatory expertise (GST, RBI, ROC), cultural context, and cost efficiencies—critical for accurate, timely deliverables. - What is the financial due diligence process timeline?
A typical internal due diligence spans 6–8 weeks: scoping, diagnostics, solution design, training, and final reporting with investor presentations. - What role do CFO consultants play in internal due diligence?
CFO consultants lead financial modeling, pricing optimization, working-capital forecasts, and investor engagement—adding executive-level insights to the diligence outcome. - How do you calculate net valuation during investor negotiations?
Net valuation equals enterprise value minus debt plus cash on hand. Financial due diligence ensures accurate debt schedules, cash balances, and working-capital adjustments. - What is a financial due diligence checklist?
It’s a structured list of documents and analyses—financial statements, tax filings, governance records, ERP logs—used to verify every aspect of a company’s financial health. - What qualifies as a due diligence agency?
Firms offering integrated services—from data-room preparation to transaction support, compliance audits, and investor presentations—are considered full-service due diligence agencies. - How can advisory & transaction services enhance investor confidence?
By delivering transparent documentation, closing compliance gaps, and crafting a credible total value proposition, advisory & transaction services help companies command higher valuations and faster deal closes.