Assessing Your Fund’s Downside Risk with Aumni
Apr 14
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Legal
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Sahil Pandya
For a VC, “economic rights” and “control rights” have very different dynamics depending on the health of the markets. They become especially significant during periods of sharp decline due to global macro events when there is uncertainty over when the economy will recover.
In a healthy market, cash flow and funding volume are higher as VCs stay on the offensive side of deals and work to a) add cash to existing strategies, b) find new investment opportunities and c) deploy capital. The specifics of certain deal terms may not be highly scrutinized when multiple offers are in play for a high flying prospective startup.
Economic Rights: How is the value of my investments going to change over time and what monetary levers can I pull to maximize my returns
Control Rights: What control do I have in steering the roadmap, growth, and direction of the companies that I invest in
Those priorities change when markets decline. Investors must defensively reevaluate their positions and assess downside risk:
- Which companies will survive a prolonged period of poor market performance?
- How will my economic and control rights in a company be affected by a down-round?
- What are the relevant KPIs and what do they indicate?
- What ability do I have to make changes to the direction of a company if intervention is necessary?
- Which companies need additional runway, and if so, is that investment worth it?
Aumni’s “Downside Risk Assessment” View
Aumni audits the economic and legal data within your deal documents to flag any discrepancies that could have material impact in the future. Our dashboard then extracts the most important information. It also allows you to quickly navigate through your entire portfolio to view key data points at a glance—summarizing companies, financings, and individual transactions.
With a variety of reports and dashboards across the platform, including our “CARES Act Affiliation” view, Aumni puts your fund's data right at your fingertips. All of the information in Aumni comes directly from audited deal documents, and the extraction and summarization process requires no effort on your part.
The new “Downside Risk Assessment” View distills the economic and control rights your firm holds in each of your portfolio companies. It helps you identify at-risk companies as well as the specific levers you have for taking action.
Looking Ahead With Aumni
Economic and control rights drive the decisions that turn portfolio companies into successes. They determine your ability to influence directions and important decisions throughout the lifetime of your investments. These legal terms are most important in today’s climate, but paying attention to them on an ongoing basis, even in good times, protects you against surprises during the bad ones.
While recent economic events inspired our “Downside Risk Assessment” View, Aumni’s deal document auditing and granular data summarization are valuable well beyond today’s economy. They are both fundamental in ensuring you have the deepest understanding of your portfolio as possible.
