PE/VC Financial Due Diligence Checklist

In general terms, due diligence is putting an appropriate amount of effort into assessing or confirming the details about something. People perform due diligence in various situations, including when buying a car or a home, for example.

The amount of assessment necessary varies based on the item or issue being considered. When purchasing a car, looking it over and going for a quick test drive may be all you need to do.

If you’re buying a house, it’s appropriate to visit it multiple times, check out similar homes, review the “comps” in the area, and have a professional do a thorough inspection. When there’s a significant amount of money on the line, thorough due diligence is a must.

Why Due Diligence Matters

Not surprisingly, this is essential for investors. By one estimate, those who do at least 20 hours of it see a 500% increase in the likelihood of earning a return.

That’s because most investment opportunities look promising on the surface. If they didn’t, they wouldn’t be offered. In most cases, it’s not until you finish reviewing the high-level information and dig deeper that you encounter issues that may raise concerns.

Consequently, it’s vital to set aside ample time for your due diligence. Rushing through it to meet a deadline is a recipe for disaster.

It’s also crucial to have a checklist. Performing due diligence is a little like casually surfing the internet. There are “rabbit holes” everywhere, making it easy to get lost in all the information and forget to check on key aspects of the investment. But with a clearly defined methodology, you can avoid those traps and stay focused on the job at hand. 

8 Essential Elements

The specific items on the checklist will vary depending on the investment. However, there are eight types of review that investors should conduct:

  1. Financial. Here you’re looking at things like cash flow, assets, debts, and projections.
  2. Workforce. Is the company adequately staffed? What’s being paid to employees in salaries, benefits, etc.?
  3. Intellectual property (IP). IP is a significant asset for some companies. Here you’re reviewing its patents, trademarks, copyrights, and brand in general.
  4. Market and operational. What is the company’s market share? Is there room for growth? Also, what are the company’s primary business risks and opportunities?
  5. Legal. Does the company have any legal liabilities that might affect your investment decision? Are there any licensing agreements or partnerships you should be aware of?
  6. Tax. In this area, you’re reviewing the company’s record on tax compliance and evaluating its tax returns.
  7. Regulatory. If the company is in a highly regulated industry, this type of due diligence is very important.
  8. Technological. What’s the status of the company’s IT infrastructure, cybersecurity, etc.?

Accelerating Your Due Diligence Checklist With the Right Platform 

Your due diligence checklist is the “roadmap” you follow to reach your decision about an investment. However, having a purpose-built solution for everything from organizing and sharing information to tracking interactions with stakeholders can make the process much more efficient and effective.

Altvia has three layers—data management and automation, intelligence, and secure engagement—that enable rapid, well-informed decisions. When leveraged in tandem with a detailed checklist, it gives users a significant competitive edge.

Contact us today to request a demo.

A traditional crm was built for general ‘customer’ scenarios

Software platforms have made the world a better place by making work a better place. Indeed the world is better off when people enjoy their jobs even marginally more, and workplace applications on big CRM platforms like have done that and much more.

But the potential that platforms like these offer presents diminishing returns: once the platform provider has engineered too many industry specific components into its platform, its usefulness for other industries begins to be threatened, and with that so do the usefulness of the component tools built into the platform.

So it is with the CRM category that has defined: it is generic enough to work for many industries, and yet still offers the potential for others to round off the edges and nail more vertically-oriented and extremely tailored software solutions.

Private capital markets are actually a great demonstration of this dynamic. Where generic CRM platforms simplify — appropriately so — to assume there’s a business, a customer, a sale, and service of that customer, there are a few industry-specific pieces that are missing.

Take for example, that investors become customers by investing through legal entities the GP raises. It’s a subtle but important nuance that just doesn’t make sense at a platform-as-a-service level (because it’s overly complicated for a simple one-time sale that many industries require), but which can easily be added without 10 years or software engineering. Once provided, the rest of the platform’s components become tremendously powerful again and you’re set to take over the world.

As a traditional CRM in our pillars methodology, these nuances must be present to properly account for investors in these legal entities, potential target companies and which are owned by these entities, the context of all interactions with these parties (as well as the appropriate overlap, ie co-investments), and how you’re arriving at finding these opportunities on both sides of the equation, such that you’re able to piece together what’s effective and what’s not. Not just because we say so, but because these are the very relationships and data that are key to the motivation behind a CRM in any industry.

It’s critical, too, that the valuable publicly-available information that helps to enrich CRM systems and save users painful steps of entering it themselves is fully-integrated at the platform level.

Again, look no further than the 3,000+ pre-built integrations that — the creator of the CRM platform concept — has at a platform level to do so, and which only exists by way of holding just short of overly-specifying certain industry workflows that would present challenges to properly integrate.

Stakeholder reporting and communication (investor relations) draws on a range of datasets

The traditional “customer service” model of CRM systems once again makes overly-simplified assumptions about the customer relationship when applied to private capital markets.

In fifteen years I personally have yet to hear the terms “warranty” or “service call” in this market because it’s just not the same. But make no mistake, as uncomfortable as it may be to say aloud, customer service is more important now than ever and it’s constantly happening; the industry is, after all, considered to be a financial “service”.

As it turns out, that service is primarily information-based — it’s driven by data and takes the form of reports and analysis that drive decisions, and then end up again in investor-facing reports and analysis.

The foundational elements of a private capital markets CRM must be built such that they accommodate this data (like we discussed above), but so too that it can accommodate additional supporting data that investors (customers!) need in the context of service.

Oftentimes this supporting data — financial metrics and time-based values, for example — is believed not to meet the traditional definition of CRM and the natural thought is “well, better do this in Excel!”.

While I happen to believe Excel is still the greatest software application ever built, its introduction to this value chain we’ve discussed herein actually creates the problem many firms suffer from: key data needed to provide customer service (again: effectively the entirety of a firm’s reports and analysis) is now in disparate systems and detached.

Both of those dynamics are important and distinct: not only is this supplemental data disparate, but when brought together there is no logical association that can be made between the two data sets.

Allow me, then, to make the point very simply: not only can this financial and time-based value data (you may be thinking about is as “portfolio monitoring” or “accounting”) be a part of a CRM, it is arguably the most important part of a CRM because it’s at the core of what providing service to the customer entails — information that comes out of data!

Firms need a digital method to engage stakeholders (ie investor portals)

Investor portals are not new; in fact, for many of us — including myself — they conjure up horrifying nightmares in which we’re aimlessly guessing at folders to find the newest document we need.

So in lies the opportunity: not only have the portals we’ve come to hate not simplified the process of acquiring information, they’ve failed to create an entirely new experience that is “customer service” driven.

To be fair, this is not a B2C market where you’d be long out of business for not having focused on customer service and thus the customer’s technology-driven experience. But don’t expect to be around too much longer if you aren’t thinking about this shift.

Today’s institutional investors increasingly expect this same consumer-like experience, and a massive opportunity is being missed by not providing it. It’s not about providing them the experience they desire; it’s more about the ability to measure engagement that is had in return.

Put simply: what’s keeping the market from providing this experience is the availability of the information that’s required to create the service that provides the experience.

If you’ve hung in this long, you know that by focusing on your CRM, you have the data that’s required to manage the customer relationship and the technology-driven experience through which that information is shared to create a differentiated and opportunistic customer experience.