The process of sharing information with investors, particularly during the due diligence. Watch the full video — free, no account needed.
The process of sharing information with investors, particularly during the due diligence phase. It discusses the importance of NDAs and how to securely share sensitive documents to protect your company information.
One of the last steps in the fundraising process is going to be the due diligence stage. At this stage, the investor wants to validate the claims that the entrepreneur has made during the conversations. Before you actually get to that due diligence process, they may request some of those pieces of information individually. I find that personally, I would not recommend having a Non-Disclosure Agreement in place before you enter the actual formal due diligence phase because you are adding more friction to the fundraising process. Fundraising is not about adding friction, but it’s about removing friction. In terms of sharing the information securely, especially when you get to that due diligence process, you want to make sure that you have a Non-Disclosure Agreement or a Confidentiality Agreement in place so that you can protect whatever information that you’re going to be sharing with that
investor. There are different ways and different tools that you can use that information, such as Google Drive, Dropbox, or maybe any other cloud-based application where you are sending that link to the investor, and you remain in control. I find that the worst that you can do is to add whatever documents and attachments to emails because the minute that you do that, that is the minute that you lose control over whatever materials that you’re sharing. By having all those materials in one single space on the cloud, you’re going to be able to remove access from that investor whenever you don’t want them to access those materials any longer. For that reason, a cloud-based application is the best way to go so that you remain in control of whatever information you’re going to be sharing. When you are actually going through the fundraising process, there are going to be different stages that
you are going to be encountering in terms of interactions with the investor. Every single interaction is going to require different pieces of information that you’re sharing all along the way. With that being said, we’re going to now break it down from the different stages and exactly what you’re actually sharing during those stages. During the first contact with the investor, what you want to do is you want to pique the interest of the investor. You do not want to overwhelm them with information. At this point, maybe you can go into the why of why you got started with this business before you go into the what and the how. The first contact is all about creating that attractiveness around your story, around your venture, so that they invite you to do a follow-on meeting or perhaps that proper, serious, and professional meeting so that you can explore whether or not there is a possibility
of exploring something together with that investor. On the pitch follow-up, you need to take it to the next level. Here, after your first interaction, you’re going to be following up with a thank-you note. In that thank you note, you’re going to be adding the pitch deck and then also the financial model so that they can review further and perhaps share it internally with some of their partners or with some of their friends in the event that they are angels or venture capital firms. When you get a preliminary offer, this is when you’re going to be pulling down the curtain. This could be either a verbal or maybe a commitment to make an investment. Perhaps they’re giving you a potential term sheet, and they have promised to really do that.