For investors, investigating deals isn’t always an easy process.
From examining an industry’s opportunity to loads of legal analysis, the amount of work in the due diligence process is often enough to deter financiers from investing in a firm.
That’s why in a recent survey, a majority of regional investors said they’d love a better way to conduct due diligence. Conducted by KCSourceLink and the Alternative Investment Forum, the survey found that almost two-thirds of regional investors say it would be helpful to have a standardized due diligence process for venture offerings.
“In the spring of 2016 we did a survey with KCSourceLink to find out why some investors were reluctant to invest in early stage entrepreneurial deals,” said AIF co-founder Mark Meyerdirk. “One of the major findings of that survey was that new investors don’t know how to properly investigate deals. Based on this finding we decided to do a follow-up survey at the end of 2016 of professional investors, who do this for a living, to see if there was a standardized due diligence process.”
The organizations asked 41 regional funds and investors — such as KCRise fund, Fulcrum Global Capital and Brown Cow Capital — about what the due diligence process looks like for them. Often, the biggest expense is time, the survey revealed.
The study showed that 85 percent of investors spend more than 20 hours conducting due diligence per venture opportunity considered. 36 percent spend more than 60 hours on each potential deal.
Most commonly, investors vet the target company by asking the management team for data, reviewing legal and financial details, analyzing the intellectual property and reviewing industry competition.
“Insights into what investors look for helps us educate both investors and entrepreneurs to create a better process for accessing capital in Kansas City,” KCSourceLink founder Maria Meyers said in a release.
The survey concluded that many regional investors may be interested in outsourcing due diligence work.
That’s why AIF and KCSourceLink are teaming up to create a Venture Stage Due Diligence Report Template, based on that recent data the survey secured. In addition, Meyerdirk said he will approach the Ewing Marion Kauffman Foundation with the possibility of conducting a similar survey on a national scale.
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