On this topic Newsletters Managing the IT Professional. White Papers Chief Technology Officers Technical executives are joining the business development team and becoming involved in the early stages of merger and acquisition activity. As a result, they need a basic understanding of the financials behind the deal, says Tim McAdam, general partner of the Menlo Park, Calif.-based venture capital firm, Trinity Ventures. Other information holds clues to the target's fiscal health. Look at the metrics around margins, McAdam says.
Metrics refer to the comparable companies that are competitors within the same sector.
Understand gross margin Review gross margins and expenditures reported in financial statements. The venture capitalist wants to see an increase in gross margins over time. This really relates to the average sales price of the product or service and the quality of what you are selling vs. what it costs you to produce. McAdam suggests that business development team members carefully consider how the employee retention rate affects the target acquisition's bottom line. This goes to the stability of the company.