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Due diligence
Due Dilligence - Why ?
Due Diligence . I've used those words so often I can't even count. I've used them a bunch of times on this blog.
After signing the term-sheet, the entrepreneur looses almost all his bargaining power! by Oct 13
Some other tips to prepare
I don't know if "vendors" is the most appropriate comparaison. But I still like the comparaison because we should not forget who's the company owners. However, they are vendors in a market where there is an overdemand for their "services". Think of other markets where it's like that and you'll understand that "customers" are not always best served in those markets. The game as a start-up is to become a "must have customer"... by Oct 14
IPR: intellectual property rights by Oct 14
I like that way of seing things, but most start-ups never get that chance: "VCs are financial services vendors to the startups and the startups ARE the customers. The price you pay is equity," by Oct 13
What's IPR? There is no definition in that post :) by Oct 13
So far, we have covered: Fundraising , The Carry , Funds of Funds , The J Curve , and Management Fees . There is a topic that has become increasingly important to me and this is the topic of Due Diligence. I cannot emphasize the importance of understanding this topic from both the perspective of the entrepreneur and the investor.
Have your DD binder always ready
DD as a revealing "test"
Earlier this year, I wrote a blog about how to prepare for the financing process , focusing in particular on follow-on financings. Some readers have pointed out to me that I left out a very key element of the due diligence process: what the process itself reveals about the nature of the entrepreneur to the VC. Many entrepreneurs I know underestimate the importance of their small and large actions during due diligence and the signals their behavior send to the VCs. In truth, the due diligence process itself is a gauntlet that tests the entrepreneur and informs the VC about their mettle and whether they have the character and skills to build a great company. VCs don’t typically enter a true due diligence process until after the 2nd or 3rd meeting. That’s when they start talking to experts in the field, customers, management team members, conducting technical reviews and combing through financial models.
And it can still end up badly
On an investment where we have a lot of market and product due diligence to do, we would not be comfortable signing a term sheet before we completed that work. The same is true with background and reference checks on a management team we don't know well. On an investment where we really understand the market, the product/service, and know the team well, the diligence is primarily double checking the facts as described to us by the entrepreneur. In this situation, we would move more quickly to a term sheet. Well, it depends.
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