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Advice Entrepreneurship Startups Venture Capital

Founders Doing Due Diligence On Investors

Doing due diligence on investors is something that should be discussed more frequently. It’s important for founders to take the time to understand who the investors are, how do they help and support the companies they invest in, how do they react when things aren’t going as well as hoped for.

Spending some time doing due diligence on potential investors can save you lots of grief in the long run. I’ve talked about this often and it’s great in theory but it’s not as easy to do in person. Now that I’m back on the operating side of a startup, here are some tips on how to diligence possible investors:

  • Start with making a list of the investors you think would be interested in your startup keeping a few broad things in mind (use a spreadsheet or a CRM)
    • Vertical the company is in and is the VC firm + partner interested in the space
    • Stage of the company and does the firm invest at this stage
    • Check size that you’re looking for and what the firm writes
    • Any existing competing investments that the firm has made
  • Find people you know that may be connected to these individuals
    • Have a prepared email that you can send to the people you know who can possibly connect you to these investors. The email should be a very short email that explains why you would like to connect to the investor, a summary of your startup and have a teaser deck attached. Some people like to use DocSend but I prefer a PDF.

Once you’ve exhausted your personal network, find 5-10 founders that the firm and the partner have invested in (ideally should include failed startups).

  • Reach out to them on social media, via common contact or a cold email to see if they will chat with you about your startup and provide some advice on your round as well as share some info about the investor(s). If they say yes to a meeting, do some research on them, e.g. understand what their startup does, maybe check out the product, use Crunchbase to get an idea of some of their investors, how many rounds they’ve raised, you can use tools like Workomo (shameless plug) to get some background about them and common interests you might have.
  • Founders can be very open with other founders. Do what you have to in order to maintain that trust. Use the meeting to do your due diligence on the investor. Ask the founder about the firm on your list and how they were to work with through the ups and downs. Make sure you are clear that this is confidential and DO NOT repeat it to anyone, even in conversation. Don’t be shy about getting into details as long as the founders are comfortable sharing. Don’t pry but don’t hold back on asking the questions you think will help you get an understanding of who the investor is and how they work.

In short, make sure you take the time to do your due diligence on investors. It’s critical to know who you’re potentially partnering with for the duration of your startup.

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Misc.

Business Plan Archive

I just came across the Business Plan Archive while reading a post on VentureWoods. The Business Plan Archive is a research organization that’s loking to preserve business plans and other business documents from the Web 1.0 era. Very interesting site with lots of very valuable information. Take a look.

In partnership with the Library of Congress, the Center for History and New Media, and the University of Maryland Libraries, the Archive collects and preserves business plans and related planning documents from the Birth of the Dot Com Era so that future generations will be able to learn from this remarkable episode in the history of technology and entrepreneurship.

Business Plan Archive

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Misc.

Diigo and Internet Research

I’ve been using Diigo and the Diigo toolbar for a week or so now and so far, I really like it. I first heard about Diigo over at TechCrunch.

Diigo is at a very basic level, another bookmarking site. However, Diigo offers a way to easily annotate comments or notes to a bookmark and share it with others not only from the Diigo site but also via email.

The Diigo toolbar even integrates with other social bookmarking sites like del.icio.us and Shadows to allow a synchronized posting of bookmarks across all these services by tagging it and annotating it just once, in Diigo.

Diigo allowed me to easily import all my del.icio.us bookmarks and start seeing public annotations that others have made regarding my bookmarks. My biggest gripe about Diigo so far is that it isn’t easy to delete a tag. I have a bunch of del.icio.us specific tags “for:<username>” that I want to remove without removing the bookmark itself. Following Diigo’s directions allows me to rename these tags but not easily delete them.

Other than this one issue, Diigo works really well for sharing research, bookmarks, and even blogging about other sites. Check it out!

Edit & Delete Tags

http://www.diigo.com/help/tagging/3

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