Key Takeaways: Next Coast ETA’s Live Panel on the Best Practices of Due Diligence

Next Coast ETA
4 min readMar 7, 2022

On February 11th, Next Coast ETA hosted the “Best Practices of Due Diligence” panel with TaskRay’s CEO Sam Swan and Next Coast ETA partner Anthony Walker.

Thanks to all that joined!

For those of you that weren’t able to, but would still like to listen in, please find the recording link here.

Video Password: H&1B?8N7
Recording starts at 06:34.

Below, we have summarized a few of the key takeaways.

Step 1: Letter of Intent (LOI)

When to sign an LOI?

  1. Get a good initial sense for the business (are there any immediate concerns (client concentration, margins, TAM size, etc)? What are some value creation ideas?)
  2. Chat with key investors to validate your investment thesis
  3. Get it under LOI as soon as possible. If it does not pan out, you will still have lessons learned and additional experience under your belt as you move along your search

Never shut down your sourcing engine when under LOI!

  • You should leverage interns to keep your pipeline going; this will avoid you having to rebuild your pipeline from scratch in case your deal dies

Pricing is important but it isn’t everything

  • It is ok to pay full price for a great asset (as opposed to rock-bottom price for an ok asset)

Commercial Diligence

Test your hypotheses

  • What is key to understand and validate as it pertains to this business?
  • For TaskRay, it was validating TAM, cohort analysis, cost of customer acquisition…

Outline your key bets

  • How will you grow the business? Is it realistic?
  • Be coachable! Know your weaknesses and ask for help from your cap table

Diligence will always look slightly different depending on the business. Some businesses might require additional third party evaluations (Compliance, Regulatory, Tech…) Don’t be afraid to leverage your investors to validate whether you are thinking about value creation and diligence correctly.

QoE Timing: When to kick-off?

Sign the LOI!

Talk to your Cap Table: Get initial buy-in

  • Do they believe this is a deal worth your time and money?
  • Show them key bets / value creation plans, initial perspective on key risks
  • A teaser could be interesting or early stages of a CIM draft

Split QofE in two phases

  • First, validate revenue
  • Second, dig deeper into the business to ensure no material financial issues

Representing / Disclosing Risk

Be transparent, genuine, thoughtful — no sugar coating

  • Investors do their own validation to gain comfort themselves; if you are transparent, you will likely get additional data and notes from your investors that are helpful in your own diligence

Present risks but detail mitigation

  • Show your investors how you got comfortable with a particular risk factor
  • A risk is less likely to be a deal breaker if you can articulate a realistic mitigation plan (plan A, B, C…)

Investor Communications

Set up your data room as soon as you sign your LOI

  • Invite your investors, start a CIM and update it over time

Some items will be work in progress in the Data Room, that is ok

  • Info can be summarized every other week via email to investors when analyses are finalized (More frequently to key investors, if appropriate — talk to your investors!)

Host weekly Q&A calls

  • Leverage an intern to take notes during those investor calls and keep the question tracker in your Data Room

Data Room: Keeping Yourself Organized

Present your data in a digestible way, Sam did it as follows (worked for him and his investors!):

  • Leverage your interns to help you keep it tidy; clean it up frequently so it is easy to navigate
  • Have the data file plus a summary page
  • Archive folders within each main folder to ensure there is versioning control. Archive folder has everything, main folder has the latest analysis plus a summary page for the investor


Gap Investors: Is there an appropriate time to reach out?

  • It will be deal dependent; if you have a large deal from Day 1, and you are aware the gap will exist due to sheer size, meeting gap investors earlier on will be helpful
  • Be careful not to oversubscribe! Manage the relationships, be transparent, leverage your CRM
  • Sam recommended in person meetings to build relationships (worked well for him!)

Closing Date Slippage

  • With Sellers: take responsibility for the slip if it was driven by you, explain when it’s not. Keep them in the loop with transparency
  • With Investors: they know slippage will happen, daily emails with updates might be appropriate especially when you have already received wires. Communicate as often as necessary with your investors when things change

Please feel free to reach out with any additional questions and do not forget to register for our future panels! Upcoming events below.

Industry Evolution I: Digital Transformation:

March 9th @ 2pm CT


During this panel, we will discuss how value can be created by infusing technology and processes into businesses that have historically been without. We detail how to pace the transformation, prioritization, building vs. buying-to-improve, key learnings around possible cultural rejection of new technology, and more.

Industry Evolution II: SaaS Eats ETA:

April 11th @ 1pm CT


We will touch on the evolution of the asset class and the emergence of SaaS companies as primary targets for searchers. The discussion will draw on our panelists; experiences as CEOs of SaaS businesses, how their diligence processes differed from the classic model, and more.



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