Diligence, Data and the Future of Startup Portfolio Management

If you invest in startups you’ve tried to streamline your diligence process. In fact, you probably have an ongoing project of streamlining your process. It’s never ending. Perhaps you utilize the available tools which were designed with the intent of making diligence or reporting easier, but the process is still protracted and painstakingly long. However, it’s entirely necessary. When we talk to founders we like to wax on about the importance of the team and the story and market size and on and on. However, at some point in the first meeting, we have an idea whether or not the team even has a chance of getting funded. Getting comfortable with the team and determining accuracy of their market size projections is something which happens quite quickly. Live discussions surrounding this area of diligence is really the most efficient way to pass judgement rather than reading words in a document. Once we determine the team is capable and the market is there or getting there everything comes down to the numbers. How fast are their users and/or their revenue growing,what’s driving that revenue, what are their churn rates, if they don’t get funded today how long can they live, what are their gross margins, etc., etc.? This is the area where things truly get interesting, but still today we rely on self reported numbers or we hire expensive professionals to verify the validity of these figures. Even then, what happens after we invest? Today, we should be able to click a button and get real, verified numbers on any startup during due diligence, but we can’t. We still must ask the founders for numbers and wait for them to compile them or hand us their T12 or whatever format we prefer. Once they’ve given us everything and we’ve run it through the ringer we give them a check. Then every quarter we ask them to update us. We use the nicest startup reporting platforms, but something is still missing. There’s a better solution, but we haven’t found it or it just doesn’t exist yet. What if we could have third party verified numbers from the diligence process forward? What if we could have nightly numbers on our companies? What if founders didn’t even have to update us, if we didn’t want them to of course? What if we could look at our portfolio at any given time and know how we were doing, how they’re doing? How would our investing world be different? How much would our efficiency of resources, time, capital, manpower or otherwise be affected? Could we make better decisions or more efficiently conduct diligence? Could we save a dying company before it was too late? Would our portfolio returns improve? If you’ve spent any time investing you realize that it’s not more data which matters. It’s the right data, but that data can’t be a pain to get. It must be seamless for the startup and the investor. Access to this accurate and timely data is a benefit to everyone involved. With a laser focus on the right data we are able to reshape our portfolios from the inside out. We can find and address struggling companies while we up the bar for our newest portfolio companies. The best part is that we don’t find ourselves drowning in data. We are immersed in the best numbers, effortlessly. While this technology doesn’t exist in this form today for investors without huge budgets, the world is rapidly changing. Keep an eye out for a bold new approach to startup portfolio management, coming soon.