Deepening Due Diligence Practices Among Qualified Investors

I talk to and meet close to 500 entrepreneurs a year – from the true maverick game changers to the guys as arrogant and dumb as can be. I believe what differentiates a killer entrepreneur from the rest of the crowd is frankly the extent of their due diligence followed by how they execute – no matter what product or service they are offering.?

Business after all is WAR and if you haven’t properly done your due diligence on any product or service you are pitching or investing in you are bound for dismal failure.?

I thought I’d share with you some of my thoughts in this regard.?

1.????? Don’t invest in something you know nothing about as most people do. Typical recipe for failure. If you have spent your networking years well you should know a number of people in the industry that can advise you properly. Listen to them closely but don’t take any advice from someone who has not made it in the asset class you are considering investing in big time.

2.????? When doing your due diligence, always “Trust but Verify” to strike a balance between being too skeptical and too trusting. Being overly skeptical and suspicious can lead to missed opportunities, misunderstandings, and strained relationships. On the other hand, being too trusting and gullible will lead to being taken advantage of, making poor decisions, and having a direct relationship to your exit strategy.

3.????? Seasoned investors can succumb to cognitive biases like overconfidence, which may skew due diligence, leading to underestimating risks or overlooking critical signs. To counteract this, it's essential to employ systematic decision-making frameworks and stress test investment theses against various scenarios. These strategies help maintain objectivity, ensure decisions are based on thorough analysis, and protect against potentially costly errors.

4.????? Due diligence is an essential process for anyone considering investing in or partnering with a company. It involves a comprehensive review of the institution’s financial and operational performance to identify any potential risks, red flags, or areas of concern.?

5.????? Qualified investors often find themselves in echo chambers that reinforce existing investment strategies, potentially leading to groupthink. To combat this, it's crucial for investors to actively seek and consider contrarian viewpoints. Embracing such perspectives can provide a safeguard against common market missteps and enhance decision-making processes.

6.????? Many investors rely on standard checks but overlook advanced tools like data analytics and machine learning, which can uncover hidden trends and risks. Incorporating these technologies can significantly enhance due diligence and provide a competitive edge.

7.????? Historical market data and case studies are crucial yet often underutilized in investment decisions. Analyzing past events, both failures and successes, helps investors understand potential risks and opportunities and can significantly enhance decision-making and prevent costly errors.

8.????? Due diligence is an ongoing process, not a one-time task. As market conditions, regulatory environments, and business models evolve, so must due diligence processes. Regular reviews and updates are essential, especially in dynamic sectors like technology or biotech, to prevent procedures from becoming outdated and ineffective.

9.????? In pursuing high returns, ethical considerations and sustainability of business practices can be overlooked. Integrating ethical due diligence is crucial, especially in today's socially conscious market, as ethical lapses can lead to reputational damage and financial losses.

10.?? While it's crucial not to overly rely on advisors, fostering a balanced relationship with them is key. Engaging constructively with advisors while maintaining decision-making autonomy can significantly benefit investors. This approach allows investors to leverage expert insights without compromising their leadership in the investment process, ensuring that decisions are well-informed yet independently made.

11.?? Learn how to gather “intel”. It is the essence of it all. Understand the demographic changes that are changing the world. Read every day to understand what is going on.

12.?? Never let your company’s decision-making process be run by lawyers and advisors. Take their opinion but never rely on them. They have their own agendas. The due diligence process helps to identify potential risks associated with buying, investing in, or partnering with a transaction. I personally use a list of a number of touch points in my due diligence process which covers the essential information that I need to understand the people’s character, transaction(s) potential for growth, the path to an exit strategy and the anticipated ROI.

13.?? The extensive due diligence process that I employ identifies financial threats, regulatory perils, legal threats, and reputational hazards to name just a few of the touch points on my list. It is the sine qua non imperative to evaluate the financial performance of an institution, including its revenue, profitability, and cash flow. This provides insight into the institution’s financial health and its ability to generate returns on investment.? The due diligence process is most important to evaluate the competitive landscape of the institution, including the strength of its brand, reputation, and market position.?

14.?? Last but not in any way least is the evaluation of the product or service’s compliance with regulatory requirements, legal obligations, and ethical standards as non-compliance with these regulations can result in significant legal and financial consequences, including fines and reputational damage.

15.?? For these reasons, compliance is always my top priority in entering into transactions. It requires a dedicated and ongoing effort by an astute team to monitor and ensure that all aspects of the company’s operations I am dealing with are fully in compliance with the relevant laws and regulations. This often involves significant investments in staff, systems, and processes to manage compliance and mitigate risks.?

And this is only for starters.

Now that you know what differentiates the killer entrepreneur from 99% of the rookies entrepreneurs out there looking for a handout from a VC who is even more idiotic than them, go for the kill and never look back.

Come to the Financial Policy Council?https://lnkd.in/eZU2UgYd , be a part of decisions that will shape the country's future & share your thoughts.

Financial Policy Council

Blackhawk Partners, Inc.

Brain Expansion Group

Raoul Davis

Stanford Silverman

Roger Archibald, Esq.

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