How do you ensure that your due diligence process is fair and thorough for all potential portfolio companies?

1 Define your criteria

Before you start your due diligence, you should have a clear idea of what you are looking for in a potential portfolio company. What are your investment thesis, strategy, and criteria? What are the key metrics, indicators, and milestones that you use to evaluate a company's performance, potential, and fit? How do you weigh the different aspects of a company, such as its market, team, product, traction, financials, and valuation? Having a defined and transparent set of criteria can help you avoid bias, confusion, and inconsistency in your due diligence process.

2 Gather relevant data

The next step is to gather as much relevant and reliable data as possible about the potential portfolio company. This can include data from the company itself, such as pitch decks, financial statements, customer feedback, product demos, and legal documents. It can also include data from external sources, such as market research, industry reports, competitive analysis, and reference checks. You should aim to collect data that covers both the quantitative and qualitative aspects of the company, as well as its past, present, and future performance and potential.

3 Analyze and verify data

Once you have collected the data, you need to analyze and verify it to form an informed and objective opinion about the potential portfolio company. You should use various methods and tools to analyze the data, such as spreadsheets, models, frameworks, and software. You should also cross-check and validate the data with multiple sources and perspectives, such as other investors, experts, customers, and partners. You should look for patterns, trends, gaps, and red flags in the data, as well as the strengths, weaknesses, opportunities, and threats of the company.

4 Communicate and collaborate

Throughout the due diligence process, you should communicate and collaborate with the potential portfolio company and your internal team. You should establish a clear and respectful communication channel with the company, and ask relevant and constructive questions. You should also share your feedback and expectations with the company, and listen to their responses and concerns. You should also involve your internal team in the due diligence process, and leverage their expertise, experience, and insights. You should discuss and debate the pros and cons of the investment opportunity with your team, and seek their input and consensus.

5 Document and review

The final step is to document and review your due diligence process and findings. You should create a comprehensive and organized report that summarizes your data, analysis, and opinion on the potential portfolio company. You should also include your recommendations, risks, and terms for the investment decision. You should review your report with your internal team and stakeholders, and ensure that it is accurate, complete, and consistent. You should also update your report as new information or changes arise, and keep track of your due diligence process and outcomes.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?