What Should I Expect During Investor Diligence?
In our new series Ask Jenny Anything, Volition Capital Venture Partner Jenny Fleiss answers the questions she gets all the time from founders and entrepreneurs. Today she’s tackling an important question for entrepreneurs: What should I expect during the diligence period? What information will an investor expect?
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ASK JENNY ANYTHING: What Should I Expect During Investor Diligence?
Hi, this is Jenny on Ask Jenny Anything. And today we are answering the question: what should I expect during the diligence period?
The diligence period is once a term sheet is signed, what a company should expect in terms of the questions and the information they’re going to need to exchange with an investor. Typically, a diligence period is around 30 to 45 days. And, it does mean that everyone is double-clicking into all aspects of your business.
So they want to understand any customer feedback. You have any data that you have. They want to dig deep into sometimes customer by customer, understanding a particular level of engagement and repeat rates that that customer has all the way through how the back of your business works, how the backbone of your unit economics work, your supply chain works, where might there be opportunities to enhance your margin and get better cost pricing structures? Where might there be risk factors that could crop up in the supply chain or in any part of your business? You should expect that there’s going to be a lot of phone calls that the customers may be called, of course, with your permission, that some of the suppliers and vendors if your business has some, would be called to trying to triangulate feedback to understand is this product-market fit there? And is there something uniquely that you’re addressing with your business that fits into the market and is in need right now? Another thing that is often very helpful and used a lot and diligence is talks with experts.
So you should expect that an investor will reach out to industry experts, people who’ve worked at different companies in a given industry and category to more deeply understand, if you’re filling that seam and that void in the market and you can build a really great, reliable business. So expect a lot of double-clicking, a lot of time with the investors. The term sheet is just the beginning of the relationship. So it’s also a great chance for you to continue to get to know and unpack the business alongside your investors. Sometimes you learn the best things about your business actually from the diligence process. It’s a great opportunity to learn about your business and the partner that you’re taking on more.
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