So now we are at brass tacks: actually making Yes/No decisions on specific deals and opportunities.
In other words, handicapping the probability of a company’s investment return projections actually coming to pass.
And relatedly, fair pricing and terms upon which to consummate a deal.
It is upon these “Due Diligence ” matters where the real - as opposed to the theoretical - money on early stage deals is made.
Now, due diligence - as it is done by serious, professional investors - is an enormous undertaking.
It often requires hundreds and sometimes thousands of hours of accounting, legal and background reviews and checks, along with third party validation and research as to claims regarding market opportunity, competitive landscape and customer pipeline, traction, and satisfaction.
It can be as time, energy, and expertise intense as any business process or project one could possibly imagine.
And because it is so, for almost all individual investors doing it thoroughly and right is almost always completely unrealistic.
Luckily, there are some shortcuts that can yield similar investment insight.
I call them the “Who, Why, and When” 15 minute Modern Due Diligence Checklist.
Who. Easily the most important question to ask of any endeavor of importance: Who is involved? What are their personal and professional histories and backgrounds? Of leadership, business, investment and life success? Who are the professional partners (Law, Accounting, Banking, etc.)? Who is on the Board? (Is there a Board at all)? Who are the Customers? The Partners? The Employees?
When it comes to whether a deal is good or not, the answers to these “Who” questions is more often than not all you need to know.
Why. Why is a deal happening? Why are those who are involved in fact…involved? Why is the deal being offered to you?
Start with Why .
When. The old adage that “Time kills all deals” is also a great harbinger into the likelihood of a successful investment outcome.
How long has the deal been shopped? How urgent/desperate are those involved to get the deal done?
Now, these questions cut both ways. I as much want to see entrepreneurs that need to get a deal get done versus those that perhaps just want it to be so.
Need, in its best sense, drives urgency and action.
Want is often lighter, less substantial, and thus more prone to delays and “almosts” versus results and return.
Who. Why. When.
Mediocre answers to any of these and almost certainly the deal is not right.
But as they are all spot on, well then the next question to ask is often “What are you waiting for?”