Why Diligence Is a Signal of Post-Investment Partnership
When we first started thinking about starting Intelis, we found capital was readily available in the locations we wanted to focus. However, it was from angel investors who’d achieved massive success in other industries and most did not want the role of the investor of conviction.
To us, being an investor of conviction goes beyond the capital, it means working alongside founders to hopefully increase the velocity and probability of scale. We strive to win deals based on founders believing we’re the best partner for them because they’ve found during the diligence process our passion for what we do comes through.
Pre-closing and during diligence we work with founders to set proper “market” legal and financial structures to ensure incentive alignment for all parties. Often, this means touching on delicate, first-time subjects for them like founder vesting or setting up employee option pools.
However, we approach these matters with the sobriety they deserve and work diligently to make it clear we empathize with the founder’s experience. We encourage them to talk to other founders, investors, lawyers, and accountants to ensure them we have the success of future rounds in mind and aren’t setting expectations outside the norm.
Once we make an investment in a team, we’re all in and make them our first priority. Post-closing we’ll provide a massive amount of operational, hiring, product and/or business development support. Our job is to support them to the fullest in any and all ways. That can range from meeting with consultants, closing potential employees, sitting in on product planning, or working on engaging partners. The goal is to help our companies grow and learn as quickly as possible which means their problems are our problems too.
There are many informal ways in which we engage with founders: text, Slack, Telegram, and calls at any time. However, we believe the first institutional capital should go beyond the informal and create habits that engage the executive team with investors on a regular basis.
This means we schedule regular stand-ups, something we greatly benefited from as operators, where we check in on progress and ask which part of the business we can be most helpful. We understand this isn’t for everyone, so we tailor it to the founder in terms of structure, frequency (no-less than every 2 weeks), and length.
We’re also big believers of the board meeting even in the cases where we are the first outside capital involved. They are typically very informal at the beginning and evolve over time. However, we think this habit accomplishes two major goals: 1) it allows founders the time to step away from the day-to-day and think more strategically at least once a quarter and 2) it sets a foundation for recording progress and process that signals accountability to the next institutional investor.
We understand that this kind of focus on process and involvement at the early-stage is different and often unexpected (if not tedious). This is especially true during the diligence process, when it’s likely we dig deeper into a business than the founder has experienced up to that point and after when we try to set Series A expecations for internal processes.
However, we think the data suggests this kind of approach works and it’s important to know that our founders are always in control of the agendas and structure. Time will tell if we are right, but we think founders crave a high-level of engagement from their investors and the results are better because of it.
Originally published at kevindstevens.com on March 3, 2018.