Part 1 of this series described why due diligence needs to change, and Part 2 described the nuts and bolts of our approach.
Just as important as the mechanics of our diligence process are the core beliefs that inform that process. These are the things we constantly keep in our minds as we move through due diligence for each company. Here are a few of these core beliefs:
1) We believe that many (perhaps even most) funders have an investment process driven by fear. They find reasons to say “no.” Our investment process is driven by confidence, and we look for reasons to say “yes” (even as we ultimately have to say “no” to far more companies than we say “yes” to).
2) We believe that the quicker we can get to a yes or no decision on doing a deal, the sooner the entrepreneur can return their full focus to building their business. The worst decision for most entrepreneurs is a lengthy “maybe.”
3) As critical as early meetings are, we believe that time spent with entrepreneurs post-investment is even more important. Pre-investment, an investor is judging the entrepreneur. Post-investment they are helping them. By spending more time helping entrepreneurs post-investment, we help entrepreneurs strengthen their businesses, which improves returns and impact for our portfolio as a whole. This is why we developed ADAP Advisory to focus on structured post-investment support of our portfolio companies.
4) We are evidence-based and analytical, but we believe there is only so much analysis you can do on an early-stage company. The quality of the entrepreneur and the business model, and strong alignment on core values, are just as important factors in seed-stage investing.
5) We believe that entrepreneurs should have the courage to walk away from investors who are dragging their feet.
The Four-Hour Due Diligence isn’t right for everybody, but we fervently believe that it’s the best approach for the kind of early-stage impact investing we are doing. Social entrepreneurs have a very small window to make their business a success, and they shouldn’t spend most of that window raising capital. As investors seeking to help create financial returns as well as massive social impact, we need to be focusing as much as we can on the business-building process, not getting mired in the due diligence process.