![]() customer problem, market opportunity, management team, competition, financials, etc.). These areas are usually covered to one degree or another in the investor pitch deck (e.g. From that we are able to distill it down and pull together a list of 3 or 4 critical areas that need further examination. Identify Key RisksĪfter listening to the entrepreneur’s presentation, we caucus to discuss first impressions and immediate top of mind questions and concerns. Let’s dig a bit deeper into each of these guiding principles so we can demonstrate how we focus our efforts and come to an investment decision in such a short period of time. Our process is driven by three guiding principles:Īcknowledge “What Needs to Be Believed” to Invest Get Seraf Compass articles weekly » 3 Guiding Principles of Due Diligence In the parlance of early stage investors, we are looking at companies during their Series Seed or Series A rounds of investment. So to be clear, we aren’t talking about businesses with substantial operating histories, multiple divisions, multiple geographies, large teams or complex product portfolios. Usually, the company is pre-revenue, though in some cases they might have up to $1M in annual revenue. We invest very early in a company’s lifespan. Split this effort across a team of investors and you have a very fast and manageable project.īefore we dig into how our process is structured, it’s important to describe the stage of company we are typically examining. Executed properly our process can be completed in under 40 aggregate person hours of effort. As my partner, Christopher likes to say: “We major on the majors.” Over the years and after making investments in nearly 100 companies, we designed a process that is intended to be quick, efficient and focused on the key issues which underpin the key risks. Our Approach to Due DiligenceĪccordingly, in our roles as Managing Directors at Launchpad Venture Group, we believe in a balanced approach to due diligence. But good data, timely and efficiently gathered, will never hurt. The amount will vary by stage of company. There is no specific amount necessary, and not all data will be directly helpful with the decision. If you need to make a decision, it will generally be easier if you have some data. It turns out that picking the right level of diligence is achievable: due diligence is really nothing more than the gathering of additional facts which you can consider before making a decision. ![]() Because so much judgment is involved in investing, it can be very hard to know what the right amount of diligence is, and how to go about it. ![]() What is challenging to explain is that both types of investors meet with some success, and both types meet with some failure. Comprehensive due diligence efforts like this usually drag on for months and may do relatively little to actually de-risk the deal. They want to feel 100% confident in their investment decision before they sign the check. They rely on their instincts and sometimes their ability to “pattern match” with successful opportunities and entrepreneurs they worked with in their past.Īt the other end of the spectrum, there are investors who will spend countless hours digging into every aspect of a startup company. Some investors will tell you after spending 60 minutes with an entrepreneur they know in their gut whether to make an investment. To learn more about performing due diligence quickly and effectively, download this free eBook today Stones Unturned: An Investor's Guide to Due Diligence in Early Stage Companiesor purchase our books at. This article is the first in an ongoing series on Due Diligence.
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