What are the most effective strategies for building trust during due diligence?

1 Be transparent and honest

One of the best ways to build trust during due diligence is to be transparent and honest about your intentions, expectations, and concerns. As an investor, you should clearly communicate your investment criteria, valuation method, deal terms, and timeline. You should also disclose any potential conflicts of interest, such as competing or overlapping portfolio companies, and how you plan to resolve them. As an entrepreneur, you should share your vision, goals, challenges, and risks. You should also provide accurate and complete data, documents, and references, and avoid exaggerating or hiding any issues. Transparency and honesty will help you avoid surprises, misunderstandings, and disputes later on.

2 Show respect and empathy

Another important strategy for building trust during due diligence is to show respect and empathy for each other's perspective, situation, and needs. As an investor, you should respect the entrepreneur's time, effort, and passion. You should also empathize with their challenges, frustrations, and aspirations. You can do this by being responsive, flexible, and supportive, and by giving constructive feedback and advice. As an entrepreneur, you should respect the investor's role, expertise, and mandate. You should also empathize with their goals, criteria, and constraints. You can do this by being prepared, cooperative, and professional, and by listening to their questions and suggestions.

4 Seek feedback and alignment

A fourth strategy for building trust during due diligence is to seek feedback and alignment on key aspects of the deal, such as the vision, goals, roles, expectations, and terms. As an investor, you should solicit feedback from the entrepreneur on your proposed deal structure, valuation, and conditions, and address any concerns or objections they may have. You should also seek alignment on the post-investment relationship, such as the frequency, format, and content of communication, reporting, and governance. As an entrepreneur, you should solicit feedback from the investor on your business model, strategy, and metrics, and incorporate any improvements or changes they may suggest. You should also seek alignment on the pre-investment process, such as the scope, duration, and outcome of due diligence, and the steps and documents required to close the deal.

5 Build rapport and connection

A fifth strategy for building trust during due diligence is to build rapport and connection with each other on a personal and emotional level. As an investor, you should show genuine interest and curiosity in the entrepreneur's story, background, and motivation. You should also share some of your own personal and professional experiences, insights, and lessons learned. You should also try to find common ground and interests, such as hobbies, passions, or values, and use humor, compliments, and empathy to create a positive and friendly atmosphere. As an entrepreneur, you should show genuine appreciation and gratitude for the investor's interest, attention, and feedback. You should also share some of your own personal and professional achievements, challenges, and aspirations. You should also try to find common goals and visions, such as impact, innovation, or growth, and use enthusiasm, confidence, and optimism to create a compelling and inspiring impression.

6 Follow up and follow through

A sixth strategy for building trust during due diligence is to follow up and follow through on your commitments, promises, and expectations. As an investor, you should follow up with the entrepreneur after each interaction, whether it's a meeting, a call, or an email, and summarize the main points, action items, and next steps. You should also follow through on your deliverables, such as providing feedback, information, or introductions, and meeting your deadlines, milestones, and agreements. As an entrepreneur, you should follow up with the investor after each interaction, whether it's a meeting, a call, or an email, and thank them for their time, input, or support. You should also follow through on your deliverables, such as providing data, documents, or references, and meeting your deadlines, milestones, and agreements. Following up and following through will help you maintain momentum, accountability, and credibility during due diligence.

7 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?