Due Diligence, Due Diligence, Due Diligence

In my office we have these words framed… “Due diligence, due diligence, due diligence… review it once, review it twice, review it three times.” I like to add, “or forever hold your peace”.

Investor’s personal financial situation
A priority before making any investment into early stage companies, is to recognize that these investments are high risk. It is therefore imperative that an honest assessment is made as to how much is acceptable for one to invest. One should only invest an amount equal to how much they are prepared to lose.

Due Diligence
Due diligence is not simply about reading documentation or reviewing numbers. It is about understanding the company’s business plan including their;

  • market landscape
  • marketing strategy
  • competition & competitive advantage/s
  • financial; historical/current/projected
  • use of proceeds
  • company’s valuation

Most importantly, it is critical to research the management team. Can they execute their plan? A flawed management team can screw up a perfect business plan.

In the end, for beginners or even the average retail investor, it is most prudent to seek out the guidance of a sophisticated investment advisor.

Founders

4 thoughts on “Due Diligence, Due Diligence, Due Diligence

  1. Research and self-education is key. Your advice above is very, but it takes a lot of time of expertise to do it effectively. One either has to spend the time to get up to speed, so to speak, or as you suggest — hire a pro. “An investment in knowledge pays the best interest.” – Benjamin Franklin

  2. Solid advice above … thanks. However, I am little unclear in doing my “due diligence” how to determine whether or not a management team can execute their plan? I always thought companies hired competent managers — at least on paper. So, I have to wonder if this kind of speculation is just fortune telling?

  3. If we tend to do our due diligence, we need to make sure we are not going to be hiring some lazy partner hoping that he will do his job, but won’t. Due diligence is more than leadership, it is also led by example.

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