19. Due Diligence (Imran Ahmad)

Due Diligence Podcast DownloadNick Moran Angel List

Imran Ahmad joins Nick on the Full Ratchet to discuss Due Diligence including:

  • Imran Ahmad Due DiligenceWhat is due diligence is and why it is performed?
  • How is a due diligence plan constructed and who most often executes the plan?
  • How long can the process take from first meet to investment?
  • Diligence is often described in Stages, what are the major stages in the process?
  • There are categories of information that investors are looking at, can you walk us through the major categories?
  • How much time and what level of detail is appropriate?
  • Do VCs often try to quantify the diligence checklist or is it more of a qualitative assessment?
  • What are some of the main reasons that deals are rejected during diligence?
  • Why is it imperative for early-stage investors to understand due diligence and execute it well?

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Key Takeaways:

1- The Due Diligence Process

Timing / Length of process:

  • 2-3 weeks for very early seed-stage deals
  • 6-8 weeks, at the most, for Series A

Stages in the Diligence Process:

  1. Screening:  Immediately when a startup comes in the door, the diligence process begins with the initial screen.
  2. Business Due Diligence:  Good sense for the
    • Business Model
    • Customers
    • Product Pipeline
    • Financials
    • Etc.
  3. Legal Diligence: IP
    • Doc’s complete
    • Stockholder Certificates are in order
    • Governance
    • Share Classes and cap table

And Imran mentioned that in the case of his firm, OCA, they will hold investment committee to make a decision on proceeding before intensive, costly diligence is kicked off.  So a unanimous decision is required to proceed with deep due diligence.

2- Coordinating Diligence activities with others
As Imran articulated, this is an entrepreneurs game and investors exist to try and help the entrepreneurs grow and make their business successful.  If you fail to coordinate with others in the diligence process and make the same requests that have already been delivered from the entrepreneur than you are only hurting the startup and impeding their progress.
3- Profile of the CEO
Imran mentioned that one of his standard background reference check questions is “what can the CEO learn, what can he do better and where can you hire around that CEO to address areas that are not a strength?
On this point, it may be worthwhile to consider founder’s characteristics and capabilities in three simple categories:
  1. Unlikely to change
  2. Teachable/Learnable
  3. Can be supplemented with hiring

There are Characteristics like work ethic, commitment, coachability, resiliance, intelligence, resourcefullness…  that may be unlikely to change.

But there are also a number of things that are either learnable or can be supplemented by hiring…  like sales expertise, technological aptitude, market or customer knowledge.
As he explained today, it can be very useful to assess strengths, weaknesses and general characteristics to inform investment and team makeup decisions.


Tip of the Week:   Due Diligence: Benefit or Burden?