How COSEF works
We typically invest through mezzanine or flexible debt instruments, employing both debt and revenue sharing. Our objective is to maximize not only the current value of an investment but also the growth potential still existing in the company.
We always consider the quality of the management team first, and we only proceed to deal with other issues if we feel the team we’ve met is one we’d back financially. Beyond management, we also consider the following; (i) been in operation for atleast 1 year; (ii) quality of product or service; (iii) size and growth rate of the market; (iv) ability of the company to achieve market leadership; and (v) competitive environment.
At COSEF, we’re fully aware that a disciplined investment process is critical to making the best use of our investors’ money. Attention to detail will never turn a bad deal into a good one—but it can greatly improve our ability to avoid getting into flawed deals, or our ability to salvage value from a deal that has not met expectations.
If your company meets our criteria, we welcome your business plan submission at email@example.com. All submissions will be reviewed and responded to within 2 weeks.
There is no substitute for careful and exhaustive due diligence—regarding not only investment prospects, but also the market and the market opportunity available to the candidate portfolio company. When a prospect proceeds to due diligence, the process involves the investment team and led by the Chief Investment Officer. When appropriate, we augment this team with outside accountants, attorneys, and industry-specific experts to complete an in-depth analysis of the company, the industry, the technology, the management team, and the market opportunity.
Our analysis include multiple meetings with management, rigorous analysis of the company’s historical financial statements, and careful analysis of detailed financial projections, with a strong focus on assumptions, necessary capital expenditure programs, the capital structure, operating margins, and projected growth. Further analysis include the company’s management team (background checks and reference checking), its products or services (supplier and customer analysis and interviews), and its competitors (market share analysis and trends, cost structure analysis). Moreover, we make a critical analysis of the company’s business plan and the likelihood of the company achieving its financial objectives. Review of the company’s business plan include an analysis of the market opportunity available to the company, the necessary market share for it to achieve its projected financial performance, and the ability of the company to penetrate and defend that market. We also review ESG elements that might affect a potential investment, and compile formal reports which outline the merits of the transaction and disclose potential risks. The Investment Committee only recommends for investment companies that have committed to comply with our ESG policy, and are willing to work with our team and partners in managing ESG risks, monitoring risk management strategies and reporting quarterly, including regular KPI reporting.
Due diligence takes 30–45 days, but may take longer when we encounter ambiguities or difficulties in building a case.
The Chief Investment Officer then recommends investments that satisfactorily clear due diligence to the Investment Committee for final approval. The Investment Committee then decides whether to proceed with preparing term sheets for each investment. A decision to proceed is documented with written investment memorandums signed by each committee member. All investments must gather the unanimous support of all committee members.
Pre-investment technical assistance
Where applicable pre-investment technical assistance from between 30-210 days is provided to the prospective portfolio company as determined by outcome of the assessments and any other evaluations during due diligence. This may cover areas such as; profitability analysis, board structure and management, budgeting, cash flow management, financial reporting, investor reporting, employee management and incentives, process development, management information systems, impact analysis and improvements, supply chain management and optimization and developing effective human resource policies and procedures. Pre-investment support is provided by COSEF directly and via its proprietary network of partner business development organizations to improve performance of portfolio companies, returns for investors and impact.
We provide tailored post investment support for portfolio companies directly and via our proprietary network of partner business development organizations to; (i) enhance performance and hence return for investors, and (ii) address ESG risks and hence promote adoption of sustainable practices across our businesses. Our representatives are chosen based on the most efficient use of industry experience, business strength, and value added networking opportunities. We seek at least one seat on each portfolio company’s board of directors, usually serving on one or more board committees as well. Particularly in smaller companies, our history confirms that our influence over strategy and operations can significantly improve a company’s performance.
We expect to have weekly contact with our portfolio companies, and we are an instrumental part of growing their businesses.
Based on our operational experience as well as investment experience, we understand how quickly a growth company can diverge from its plans, and how expensive such detours can be. From each of portfolio company, we require monthly, quarterly, and annual financial statements, including income statement, balance sheet, and statement of cash flows. At the same time, we realize that not all challenges can be quantified in financial statements. Our oversight of the company can include detailed product reviews, recruiting of key management, discussions with potential corporate partners, and even participation in sales calls and trade shows.
We know that each investment will encounter unpleasant surprises. Our goal is to uncover those surprises as soon as possible, before a solution becomes impossibly expensive.