What do you do if entrepreneurs are unresponsive during the due diligence process?

There are some questions that can lead you to understand this situation: Have I clearly communicated the urgency and importance of the information or actions I'm seeking? What methods have I used to reach out, and have I varied them appropriately? Have I considered the workload and priorities of the individuals I'm trying to reach? Are there any patterns in the lack of responsiveness that I've noticed?

Seek to understand the reasons behind the entrepreneurs' unresponsiveness. It could be due to workload, competing priorities, lack of understanding about the process, or other factors. Showing empathy and being open to their perspective can help address underlying issues

Things come up. Attempt to re-establish communication through an open and understanding dialogue. Express your interest in their venture and the importance of due diligence in the investment process. Highlight how responsiveness is crucial for building trust and a positive working relationship. Sometimes, a direct and honest conversation can resolve misunderstandings and re-engage the entrepreneurs.

To help with this open dialogue, think of a structure that reflects this intention. For example: "Hi [Name], I hope you're doing well! Just a friendly reminder that I'm eagerly awaiting your input on [specific topic]. I understand how busy things can get, but due diligence is crucial in our investment process, and I'm here to help with any challenges you might be facing."

I have faced multiple issues in which startups needed to prepare or be more confident to share specific data with me. As an investor, I prefer open communication with entrepreneurs, but unfortunately, that did not happen. In such sensitive matters, I always prefer verbal communication over written communication. I talked to the startups to understand the reasons for the delay, and they said they needed to update the data. Even though they shared everything in a few weeks, I decided not to invest in these startups.

Initiating contact is crucial. Send a courteous reminder indicating you're awaiting their feedback. Highlight the significance of thoroughness in their investment decision-making and offer help with any obstacles they encounter. Opting for a phone call over email can enhance the effectiveness of your communication, offering a more immediate and engaging connection. This direct interaction allows you to assess their tone and level of engagement, offering valuable insights into their interest and commitment.

Being able to talk to each other openly and straightforwardly is a key first step in an ongoing relationship. Seeing how people react after the initial phase of compliments will reveal much about their character and ability to work with others effectively.

The inclusion of appropriate deadlines keeps you and all other stakeholders accountable. Clearly communicate the importance of timelines in the investment process. Set reasonable deadlines for the submission of required information, emphasizing that these timelines are standard practice and necessary for making informed investment decisions. Deadlines help to prioritize tasks and convey the seriousness of the due diligence process.

To effectively track and manage deadlines throughout the due diligence process, it's crucial to implement a robust follow-up system. This involves regularly checking in with stakeholders to ensure progress is being made according to the established timeline. Utilizing project management tools or software can help keep track of deadlines and send reminders when tasks are approaching or overdue. Additionally, maintaining open lines of communication and addressing any potential obstacles or delays promptly can help mitigate risks and keep the process on track. By staying organized and proactive in monitoring deadlines, you can ensure that the due diligence process progresses smoothly and efficiently towards its conclusion.

All requests should have agreed-upon deadlines. If there is no established deadline, one party has yet to agree to the request.

Set clear deadlines and milestones for information submission and progress updates. Break down the due diligence process into manageable steps and establish accountability for meeting deadlines. Regularly follow up to track progress and address any delays promptly.

There are some guiding questions that can help you better understand the issue: Have I thoroughly researched and analyzed the market trends and data supporting my investment thesis? Am I effectively communicating the value proposition of my investment thesis to co-investors? Have I received any specific feedback from co-investors regarding areas of concern or improvement in my thesis?

Explore alternative solutions or workarounds to gather the necessary information or conduct due diligence if direct communication with the entrepreneurs remains difficult. Consider engaging third-party experts or conducting independent research to supplement the information provided

Move on. If an entrepreneur seeking capital is unresponsive, that it a very bad sign that indicates either that the entrepreneur is poor at managing priorities, doesn't have the team to respond properly to your inquiries, or is concealing information that would not support an investment. In any case, it is a terrible harbinger of things to come and, in a world of many opportunities and limited time and resources, I would think that your time would be best directed to other situations.

Be ready to walk away. Persistent unresponsiveness may indicate underlying issues with the startup or a lack of interest in securing investment under your terms. Reevaluate the potential investment, considering whether these communication challenges are red flags that could indicate future partnership difficulties.

Take it as a signal of how communication will continue to be if you invest. If you’re okay having a slow to respond or quiet founder… then it’s fine, but if you aren’t then it might be best to pass.

If attempts to engage consistently result in silence, it may be prudent to reassess your investment interest. Lack of responsiveness during due diligence can signal concerns about the startup's internal operations and their reliability as a business partner. This unresponsiveness might be a red flag, hinting at potential post-investment complications. Your primary aim should be safeguarding your investment and supporting a team that prioritizes open communication and transparency.

From my experience of interacting with a dozen entrepreneurs a week, depending on the stage of communication, I try to get clauses related to due diligence cooperation or exclusivity. While term sheets are often non-binding regarding the investment, they may contain binding provisions related to confidentiality and exclusivity that could be leveraged to encourage responsiveness. Similar to term sheets, any LOI may include clauses that obligate the startup to participate actively in the due diligence process. However, enforcement can be challenging and may sour the relationship, so this needs to be treated with caution and managed through communication, negotiation, and, if necessary, withdrawal from the potential investment.

These are two points to consider from my personal experiences: - Feedback Mechanism: Implement a feedback mechanism for entrepreneurs to share why they were unresponsive. - Advisory Support: Offering advisory support or resources to help startups better prepare for the due diligence process can mitigate unresponsiveness. Sometimes, startups are overwhelmed by the complexity and scale of information requests. - Patience and Perspective: While timely communication is crucial, it's also important to maintain patience and perspective. Understand that startups operate in dynamic environments and that your investment process is one of many priorities they are balancing.

Figure out the whole context around it: Are they closing a significant contract and cannot get in touch? Do they have a dedicated person to handle such requests? Are you a considerable investor entitled to a deep dive into the dataroom? Long story short, if you cannot find a fixable excuse, you can only extrapolate that they are not client-oriented. If the founders are irresponsive to an investor during their decision-making, imagine how they will treat you after you invest and lose your leverage. The same would be relevant to the way they treat their clients. All in all, investment is a marriage, ensure that your heart and mind feel good about it.

Often lack of engagement with due diligence is a result of the initial request for information. Entrepreneurs receiving a 40 page questionnaire from the VC's lawyers can find the document unmanageable, particularly where the start-up is busy and bootstrapped. - try to ensure that DD request lists are shorter and focus on key risks. There should be no harm in following up with additional questions as required so that requests are more manageable. - ensure that expectations are aligned. There is no point telling the founders that due diligence will take a week if you instruct lawyers to do a deep dive.

Navigate with strategic finesse! Begin by ensuring your inquiries are crystal clear and digestible, avoiding information overload. Set explicit deadlines to frame expectations and spark action. Offer a helping hand for those overwhelmed or puzzled, and keep the dialogue warm with courteous reminders. If emails vanish into the void, switch up your tactics—try a call or a meeting for a direct connection. Dive deep to understand the root of their silence; empathy here can fortify bonds. When all else wavers, a final deadline can draw a line in the sand, compelling a decision. Should silence persist, reevaluate your investment stance.