The Perfect Pitch: How to Run a Great Diligence Process
Nitya Rajendran, Senior Associate
If you’ve followed our advice on how to deliver a great pitch (7 Steps to Deliver The Perfect Pitch), you’ve gotten to the next step and it’s time to run a great diligence process. Diligence is your opportunity to build relationships with VCs and show them how you think. We’ve done diligence on tons of companies, and this is advice we share with all our founders. While it’s certainly not one size fits all, below are some best practices to keep in mind.
Communicate regularly.
At TVP, we like to say, “all good deals accelerate to a close.” After a great pitch, investors are excited to continue the conversation. Most of the time, VCs will follow up within a day or two after the first pitch, and communicating regularly is the best way to keep the momentum going. Relatedly, if you don’t hear from a VC after a week or so, it’s fair game to email them to see what they need to continue the conversation.
Prepare your company’s data ahead of pitching.
In the month leading up to the initial pitch, prepare your data room so when an investor asks for data, it’s ready to go. This will speed up the entire diligence process and help you get back to running your business.
Create a robust data room.
Every company and industry is different but at the Series A, this data should get you 80% of the way there:
- Pitch deck
- Historical financials and financial projections
- Product roadmap
- Video of product demo (if applicable)
- Org structure and list of employees by department
- Company policies/handbooks
- Marketing plan
- Industry information, such as market research and competitive landscape analysis
- Customer metrics, such as CAC, LTV, ACV, churn, and repeat purchase rate (metrics to include depend on industry)
- Customer contracts and sales pipeline with the probability of closing (if applicable)
- Cap table
- Plans for use of funds and post-financing hiring
Line up customer and personal references.
Prepare your customer and personal references but don’t share them until later. Wait until investors are serious and have done the work before you help them set up reference calls. You don’t want customers or personal references fielding dozens of VC calls.
Create a diligence timeline.
A loose timeline is helpful to ensure VCs are running through diligence at a similar pace. While it isn’t always possible to stick to a timeline, it can keep the process streamlined and add competitive tension to the deal.
Brainstorm with and get to know VCs.
If there are certain issues you’re struggling with, such as pricing, feel free to bring them up to VCs to see how they respond. This will show you how they’ll operate in the boardroom. Do they know the industry well and can they offer meaningful insights? Do they offer to connect you to an expert? Do they just make something up?
Also, you should understand firm dynamics. Learn how the firm makes investment decisions and how everyone plays a part in the decision-making process. For example, do the GPs have to reach 100% consensus to do the deal? Knowing this helps you to have more visibility into the firm.
Reference check investors.
This is a two-way street. When you’re giving your references to VCs, it’s a natural time to ask them for founder references. All VCs should be comfortable providing these — if they don’t, that’s a red flag. Ask them for references to founders of companies that are doing great and founders whose companies failed. These are long-term relationships and it’s important to see how VCs acted and if they were helpful during both the ups and downs of a company’s life.
