Sometimes entrepreneurs go into investor meetings expecting a “Shark Tank” experience. In reality, the typical investment process is quite different. That’s because unlike Mr. Wonderful, JumpStart, and most other venture capital firms, are not positioned to bring forth a term sheet within minutes of learning about your business.
When we initially meet with a company, our top priorities are to gather information and ask questions. If the first meeting goes well, it is common that we will schedule several additional meetings–both as a team and with the entrepreneur–to decide whether the opportunity is a good fit for our funds.
Only when we feel comfortable that a company is ready to move forward, do we then begin our official due diligence process. Assuming all goes as planned, this process will typically last six to eight weeks.
Below are some things to keep in mind as your company enters due diligence, along with a few tips to help you make sure the process goes as smoothly as possible:
Create A Document Data Room
One great way to prepare for due-diligence from an investor is to organize all of your company-related documents in a cloud-based “data room” so they can be shared securely and efficiently with the various decision-makers who need to see them. DropBox is the most common platform, but there are plenty of other options as well.
Here’s some of the data investors are typically looking for in these data rooms:
- Primary and/or secondary research around your market size
- Information about your business model (product/technology, value proposition, target customers, partnerships, go-to-market strategy, etc.)
- Monthly pro-forma financial projections
- An organizational chart and information about your management team
- Pertinent legal documentation (contracts with vendors, organizing documents, etc.)
As investors learn more about your business, you should be prepared to have frequent check-ins with the due diligence team and you can expect that a lot of questions will come up along the way.
At JumpStart, we typically reserve at least two hours each week for discussion between the due-diligence team and the entrepreneurs we are considering for an investment. Some weeks we can forgo the conversation, but setting a standing meeting helps to set and manage expectations.
Even after due-diligence has been completed and deal terms have been decided, the closing process still involves a lot of legal documentation, only portions of which are under the direct control of the investor and/or the entrepreneur.
Delays during this stage of the game can be nerve-racking for entrepreneurs. They can also cause major headaches for the PR and marketing teams who are so eager to spread the news about a startup’s success. That’s why it always helps to build flexible timelines with plenty of cushion built-in for unforeseen delays.
Due diligence can be a time consuming process for the investor and a stressful one for the entrepreneur. But the process is much more efficient, and significantly more pleasant when both sides know what to expect and when to expect it.
Remember, in many ways due-diligence is a two-way street. So, if you have questions, don’t hesitate to ask your potential investors. You have every reason to know what’s happening and why. All we ask is that you be willing to keep doing what you’re already doing everyday as an entrepreneur–remain agile!
To view JumpStart’s investing criteria and see all of our funding options, click here.