How do you manage the due diligence process across multiple stakeholders and parties?

Due diligence is a pipeline activity and “communicate” & “align” are misnomers as these are part of the negotiations phase between the various deal parties before DD starts: ? What is on-topic deal-wise and what shouldn’t be discussed? ? Do investment or target M&A internal stakeholders know of the deal? If not, they are rightfully suspicious when put into a room with anonymous faces asking highly detailed questions. How do your inquiry tactics change to deal with this situation? ? Who will be present during discussions? (e.g., deal eager founders may override answers being given by internal stakeholders.) ??How are interviews conducted? (e.g., non-verbal communication, a significant information gathering tool, is hard to use over Zoom.)

Beforehand, what is your data collection strategy? ? Consent (e.g., NDAs, access to customers, etc.) ? Privacy (e.g., what is confidential and to/from whom?) ??Gathering (e.g., who is best positioned on the team to get a piece of the puzzle?) ??Storage (e.g., types of data, who owns the data room(s), what laws govern it, etc.) ??Access (e.g., how do you prevent data leaks between buy-side DD practitioners?)

Use the answers from the due dilligence process to help the founders to develop. Risks that you as investor see might not be same risks as the founder see. Here they can benefit from the due dilligence afterward.

Tools and templates are great but keeping your process flexible is key as you might not be in a position to dictate their use. For example, a hot late stage investment or an M&A target more than likely has hired a firm to handle the transaction that will dictate tools & processes. Focus on progress over process, especially the earlier you are in the investment cycle. Startups continuously change as they progress from Seed to IPO and the amount of actionable DD data runs from a trickle to a flood. Concentrate on exactly what you need at which stage in order to make a decision. Present your findings in simple, 1 slide/infographic terms that deal makers can easily understand without specialized jargon. ?? (invest) or ?? (don’t).

This is a critical area where one separates out the ‘hows’ (e.g., qualitative) from the ‘whys’ (qualitative) around an investment. Soft skills, cultural nuance grasping, and experience are paramount in order for these data capture exercises to be effective. ? How do you build up a basic sense of trust, harmony, and rapport? ? Can you pick up on non-verbal communication/behavioral clues? ? What’s your strategy when the previously agreed upon schedule radically changes once you’re on the ground? ? What kind, how much, and in what format of feedback do you give back at the end of an interview/process? You are taking time away from founders/teams that could be spent building better products. Make it worthwhile.

Cross validation can be tricky with investments in certain parts of the world. Beware of the use of “best practices” that haven’t been localized, as what works in one locale (say, California) won’t necessarily work in another (say, Nigeria). More importantly, what is your DD sensemaking pipeline like? (e.g., hypothesis->data->information->knowledge->insights) How do you extrapolate learnings for use in other, broader contexts?

Larger firms should be very cognizant of the ‘handover’ phase of an investment from dealmakers to operations or M&A teams. Unless those teams were involved from the beginning of the deal significant knowledge loss can happen and can hamper the start of a fruitful relationship.

DD reports and analysis can sometimes give a static view of a company. What you want to understand is: Can the team execute according to plan, with a strategy that will bring market share, revenue and profitability? It's never a guarantee, given market forces, but a DD must include team dynamics, how the product is being produced, do they work according to a product strategy, with process discipline etc.... Has the team delivered according to plan, do they have product margins, do use KPI's to run the business.....?