It is highly recommended to angel investors to develop, adopt, or use proven methods conducting due diligence on early-stage companies. it is known that regardless of the industry or the market sectors you are interested in, applying and using a repeatable diligent process that covers all the basics, and most of the critical points in evaluating investments significantly increase the upside of any Investment Portfolio.
A due diligence process of early-stage companies it’s a combination of the art and science of business. Vetting early-stage companies require a high level of understanding and operating inside the human system more than understanding the operations or the financial side of the business.
In most early-stage investments, investors are betting on the driver, i. e. the founder, more than they are betting on the business. It is very different from a due diligence process that is required for early-stage companies than what is required for later-stage companies. The other reason to adopt a specific discipline ensures that you’re not doing too much or too little.
A discipline defines as; A collection of Industry best practices that are based on a set of industry standards and collected data that is assembled in a repeatable process and can be reused over time in order to produce predictable outcomes. The core purpose and intent are to take the mystery and the guessing out of the equation. Although, no matter how hard you work on the screening and vetting and conducting complete due diligence on a company, it will not guarantee success. It will however provide you with the ability to create a set of key performance indicators that will guide you in building your portfolio.
The common wisdom tells us that much of early-stage investing is some sort of a gamble that in many cases holds true in some ways, you can mitigate your risks by conducting well thought through vetting processes.
The due diligence process is built and designed based on the following promises:
- That which is Required
- That which is Recommended
- That which is Suggested
Most human beings gravitate toward what they feel comfortable with and what they feel confident about, and yet conducting due diligence on early-stage investment opportunities will require you to get into some areas in which you are not necessarily comfortable with or have the background or the competency for. That is why the disciplined process will force you, and guide you in a methodical way such that you will not step over any important elements of the business, although subconsciously you might want to ignore it.
It is ultimately up to you how extensive or light you want your process to be. Adopting a methodical process will ensure that you have the right balance.
