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 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.