Balancing Due Diligence and Making Fast Decisions in Early Stage Startup Investing

Hey everyone, welcome back to investream. I'm Punk Ridge and I know it's been a little while, but today I'm going to talk about why it's important for investors to try and balance speed of decision making with due diligence. Coming up next. Sorry for the hiatus, but been tied up with a couple of things and taking a little bit of a trip. So I'm here in beautiful Iceland. If you're planning or thinking of a vacation, I highly recommend it. And if you need some suggestions of where to stay and what to do, let me know. Happy to share that information with you. Today I'm going to talk about why it's important for investors to balance due diligence with speed of making a decision. I've been involved with a couple of investment committees making decisions about various startups to invest in and there have been some great deals that we've been able to invest in and also some great deals that we wanted to invest in but for various reasons we haven't. And part of it is trying to find a balance between due diligence and speed. So the best deals that are out there are going to go like this. It's those deals that are interesting and could potentially be incredible deals in the future where you have to try and figure out how do you balance time that it takes the amount of information you're asking from a founder and from startup to financials, all this stuff. It's a really good idea to kind of have a checklist of all the information that you want and really just any deal that you're interested in, send them one shot and say, hey, this is everything that we need, everything that we want. We might have a couple of follow up questions, but beyond that, you don't want to stretch out a decision making process that goes for months and months and months. Why? 1. Founders Talk. Founders will tell other founders about their experience raising money from you and how that went. And was that a painful process or was it a painless process? 2. If it's a good deal, it's going to go fast. Other investors are going to pile in and you may not get the allocation that you want. And you know that is probably more of a problem in more mature markets and less of a problem in newer startup markets. But still, it's important to set that precedent early on. If you set the wrong precedent, a lot of good deals may not even come to you. When you have a really early stage company, it's impossible to get a lot of information because the company just hasn't been around for that long. So generally due diligence should happen pretty quickly. You want to do legal due diligence. You want to make sure that you've gotten the information that you need to know where the IP of the company resides, who are the founders, who are the other investors, does the cap table and everything look close? You know that's some basic stuff. And of course you want to dive into the business itself and be sure you understand what the business is, how it's working, what the revenue models are. Has the company been able to prove out the revenue model and show that there is interest in the business. So you know there's some basic things that you can do. But getting into a lot of detail could make it difficult for you to get access to high quality deal flow in the future. Because like I said before, founders will talk to each other and in a lot of instances even investors will talk to founders and they'll say look, our experience with so and so investor hasn't been very positive for whatever reason and they may not go into a lot of detail but they will share some information with their portfolio companies because they want high quality investors coming on board and helping those companies. So they want investors that will move quickly, add value, be helpful, provide network access, a lot of those things. But it's important that the investors also feel very comfortable working with you. And sometimes if you take too long to make a decision, a lot of investors are just going to move on to other co investors or just take the deal themselves. So I hope this is helpful for some of you that are angel investing or starting new funds or thinking about starting a fund or joining a VC or just getting started with investing in startups. And if you've got other tips and suggestions of why you think it's important for investors to be very clear on balancing due diligence with speed of making a decision. Love to hear your tips. Please share them in the comments section below. If you haven't yet subscribed to my YouTube channel, if you hit the link in the description below, head over to YouTube and subscribe. And make sure you hit the little bell so you don't miss out on a single episode of Invest Stream. Thanks again for joining me and I'll see you again soon.