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Due Diligence: A Fascinating Opportunity
Revisiting the PitchFact origin story and highlighting our focus for 2024
Interviews
Two years ago, I interviewed 3 sets of people:
Startup founders.
Angel investors.
Leaders of angel networks.
I asked them all one core question.
“What sucks about angel investing?”
Here’s what I learned.
The Observer Express
Don’t have time to read the entire post right now? No worries, here are the main points:
What I learned from interviewing 50+ founders, investors, and network operators: due diligence sucks.
What is diligence?
A taste of the diligence topics we’ll explore together this year.
What areas of due diligence would you like to learn more about?
Here’s what I Learned
After 50 interviews, one theme stood out:
Due diligence sucks.
The process is time-consuming. It’s different for every investor. It’s difficult to do well.
But it’s also extremely important to investors.
Many pre-seed and seed-stage investors seemed to lean toward one of two extremes:
Zero diligence. Investment decisions are made primarily on gut feeling and taking the founder’s word for it.
Too much diligence. Investment decisions are made only following an unrealistic amount of diligence relative to the size of the investment.
There was a clear need for a company to bridge the gap and focus on making diligence easier for everyone.
So I launched PitchFact with a mission to “cultivate flourishing through efficient and collaborative early-stage diligence.”
Focus
Since kicking off this Substack in May of last year, I’ve focused our discussions primarily around angel network diligence and operational processes. A few weeks ago I published a tool for assessing angel network process strength.
Over the next year, we’ll turn our attention to exploring what due diligence looks like more broadly for investors considering pre-seed and seed-stage investments.
But before I share some of the topics we’ll discuss, let’s take a step back and answer a key question.
What is Due Diligence?
Here are the definitions, according to Merriam-Webster.
Diligence: “steady, earnest, and energetic effort: devoted and painstaking work and application to accomplish an undertaking.”
Due Diligence (business context): “research and analysis of a company or organization done in preparation for a business transaction (such as a corporate merger or purchase of securities).” (Emphasis mine)
Those 6 little words in the 2nd definition are critical to notice - the purpose of due diligence is ultimately to help a prospective investor make a decision regarding a transaction.
It’s a simple definition.
But after being part of a team that produced 200+ diligence modules on 60+ companies over the last year, I’ve learned that there’s a lot to unpack here. That’s why I’m going to spend the next year exploring some of the following pre-seed and seed-stage due diligence topics.
Topics We’ll Discuss
Here’s a list of some of the diligence topics we’ll discuss together over the coming months (in no particular order).
Market sizing
Overarching diligence process
Competitive analysis
The use of AI in diligence
Traction analysis
Exit analysis & potential returns
Financials
Term sheets & lead investors
Product/Technology
Problem analysis
Team (founding and advisory team)
Startup organizational structure
Business model & go-to-market strategy
Social and environmental impact
Regulatory and legal considerations
Intellectual property
Much more
This list is by no means exclusive or exhaustive and will evolve over time.
In fact, that brings me to my final point for the day…
What Would You Like to Learn About Diligence?
What areas of DD do you feel are the most important, yet least well-understood? Which areas are most confusing or unclear? What kind of diligence do you find most difficult to perform?
If any of this sounds interesting to you, I hope you’ll respond with some of the diligence topics you’re most interested in and stick around to learn with me in the weeks ahead.
Final Thoughts
Due diligence is a tough but essential part of investing in pre-seed and seed-stage startups. Its primary function is to help investors make a decision, yet many investors tend to perform either too little or too much before writing a check. I’ll spend the next year breaking down a variety of common diligence topics, and hope you’ll stick around for the ride.
Weekly Observations: 3 Lessons Learned
LinkedIn page follower count hack: post a job.🚀This week I unintentionally boosted our company’s LinkedIn follower count by 144%. How? I posted a sponsored job on the platform for 24 hours. We went from 262 to 640 followers overnight. Insane.
Sell a product, not a service.🏭Over the break, I read Built to Sell: Creating a Business That Can Thrive Without You by John Warrilow. It took me about 2 hours to read and was well worth the time. I highly recommend it. Main takeaway? Treat your service business like a product business and focus on building repeatable systems to deliver that product.
Experience makes a big difference.🧠Last week the PitchFact leadership team met for our annual meeting. It was truly spectacular to see how much more efficient and effective we were with our time together after a year of running the company. I’d venture as far as to say that 9-hour session was more productive than any 2 of our previous quarterly meetings combined.
Weekly Links: 3 Things I Found Interesting
Thanks for reading, have a great week.
-Andrew
If you enjoyed this post, please share it with a friend, colleague, or anyone else who may benefit.
P.S. - I recently finished creating The Angel Network Toolkit: 90 Resources for Cultivating a Thriving Community of Pre-Series B Investors, and I’m sharing it with anyone who refers a friend.
How did I do this week?
About Me
I cultivate flourishing.
I'm also the CEO of PitchFact, where our mission is to cultivate flourishing specifically through efficient and collaborative early-stage diligence. I'm a proud husband, grateful father, and honest friend. My love languages include brisket, bourbon, and espresso.