Share Your Investing Due Diligence Process
I’m curious about the different resources, steps, and techniques that investors use to research equity crowdfunding businesses and perform due diligence. For example:
- What areas do you look at? How do you weigh them and make a final investment decision?
- What tools/resources do you use?Do you use inversion like Charlie Munger (i.e. invert your investment thesis, then do a rebuttal on the inversion and draw a conclusion)?
- Do you use any standard investment checklists, startup investing checklists, or have you developed your own?
- How important is valuation in your screening process? How do you estimate valuation?
Get a free copy of the due diligence checklist I use in the members-only tools area of Crowdwise.
Here’s my process (covered in more detail in Due Diligence 101 Part 1 and Part 2 videos):
1) First, I do a “don’t diligence” Level 0 screen – only companies that have met a minimum threshold in terms of momentum (~$200k+) OR that have caught my eye for another reason (recommended on a deal-rating service like Kingscrowd, etc.) will enter my due diligence funnel
2) Next, I do a Level 1 screen where three areas very briefly:
- Are the founders absolutely amazing?
- Does the investment have massive upside potential (Peter Thiel’s rule)
- Is the idea crazy, weird and/or non-consensus
- Review questions on the campaign page (I think these questions are one of the most valuable due diligence resources at the disposal of crowdfunding investors)
3) Finally, I move on to a detailed Level 2 due diligence screen, where I look at:
- Team – is the founder amazing and do they want to win against all odds?
- Tech – is the product solving a real problem and 10X better than what’s available?
- TAM (total addressable market) – is the market huge and attainable?
- Traction – is there a proven need and are customers willing to pay?
- Terms – are the deal terms suitable for you and do they align founder/investor goals?
- Valuation – is the valuation reasonable for this team, industry, and business for their current progress?
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