Many of us have experienced being ‘led on’ romantically. We invest time and energy into a relationship, only to find out later that the other person was ‘not that into you’ . Yes, those heartbreaks were devastating, as it felt like our time and energy were cruelly wasted. Akin to being left standing alone at the altar.
Sadly, and increasingly in this current funding climate, we are seeing this same behaviour in the venture capital world through our ecosystem research and the work we do supporting our own portfolio companies at Africa Trust Group. Investors leading entrepreneurs on, only to flake or back out at the last minute. This is cruel and costly. A clear and swift NO is kinder and more cost-effective for everyone.
Granted, the process of due diligence between a potential investor and investee is much like a courtship. And rightly so as the investor-investee partnership is a relationship that can last on average anywhere from 12 to 84 months +. Thus, both parties are trying to decide if they are a good fit for each other before they ‘commit’ to one another. However, it matters that the length and complexity of the due diligence process be commensurate with:
1. The stage of the investment: Whether pre-seed, seed, Series A, B, C etc. Naturally, a small investment in a pre-seed company should not require the same level of due diligence as a large investment in a Series A company.
2. The amount being invested: Due diligence can be expensive both from a time and cost perspective. So, you don’t want your $10,000 investment into a business costing an entrepreneur with limited resources $15,000 in fees.
So how might we be kinder?
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