Your Pitch is Just the Beginning: Preparing for Due Diligence

By: Elizabeth Usovicz, General Manager of Transaction Commons, as part of a series she writes for ACA aimed at entrepreneurs, "Your Pitch is Just the Beginning."

Your pitch is essential to getting your company noticed by investors. The challenge is to maintain the momentum of a successful pitch in the next step to funding - the due diligence process.

Many entrepreneurs don’t think about due diligence until they are asked for the documentation by a potential investor. The leadership team scrambles to pull together documents while customers and prospects are sidelined and sales opportunities evaporate.

How prepared is your company for due diligence? What steps can you be taking now to increase your success and reduce the time, effort and expense? Here are a few initial approaches to consider in advance of a due diligence review.

Start with Your Management Team: Ensure that you have updated resumes on your management team, and a list of references for each. Then have a candid discussion about background checks. Most investors will call references as part of the due diligence process, and some dig deeper. The references you list may be called, and they may asked for additional references for your management or company.  Some angel investment groups do background checks conducted by third party firms. If anyone on the team has any issues or liabilities that may surface in a background check, it’s best to know in advance so that you can be prepared to discuss the issues with your potential investor. 

Back Up your Pitch: If you’ve indicated in your pitch that you have a robust pipeline, you’ll need to document that pipeline in due diligence. If your pitch suggested that you were close to closing a sales partnership with a large player in your market space, make sure you can back up that relationship.  Consider using a Customer Relationship Management platform (CRM) to track your sales pipeline, manage your customer relationships and export reports for due diligence.

Collect and Organize your Documents: Some documents are easier to put together than others. Start your due diligence file with readily available documents, and review it at least quarterly for updates.

Your potential investor may have a preferred checklist, but you can begin populating basic document categories such as Agreements, Financials, Company Background, Management, Legal, Product/Service and Sales and Marketing.

Present Your Documents as Professionally as Your Pitch: It could be worthwhile to reading the privacy policies of the email platforms or collaboration sites you’re using or considering. Many of these sites own, share or sell your data and personal information. Consider a professional-grade due diligence tool for presenting your documents and protecting your privacy. There are several cost-effective alternatives to email or consumer-grade collaboration spaces.

Due diligence is an investor’s process for validating the question your pitch raised: Is this an opportunity in which I want to invest my money? Keep your pitch momentum strong so that the answer to this question is yes.