937-203-0771 
At Entrepreneurs’ Center (EC), we recently hosted an Angel Capital Association (ACA) webinar focused on a critical topic for early-stage investors: Due Diligence.
There’s no shortage of articles and frameworks out there explaining what due diligence is, why it matters, and how to do it well. I’ll leave you to explore those resources on your own. Instead, I want to share three key takeaways from this session that stuck with me—practical insights you might not find in a checklist.
Know the Customer (Even If You’re Not One)
As an investor, chances are you’re not the target customer for most of the startups you evaluate. That makes it harder to truly understand the value of what the company is offering. Here are a few ways to bridge that gap:
- Research the problem, not just the solution. Are the company’s assumptions about the problem real? Can you independently verify that this issue exists and matters in the market?
- Listen to customer voices. If you can make reference calls, do it. Learn how real customers describe the problem, how they use the product, and how important it is to their operations or lives.
- Understand the buying journey. How do customers in this space evaluate solutions and make decisions? What drives their urgency—or lack of it?
How the Company Sells Matters
Not all sales models are created equal—and they dramatically impact the path to revenue. Is this a one-call close, a year-long enterprise sale, or a multi-stakeholder partnership model?
You need to understand:
- What the sales process looks like
- How long it typically takes
- Who is responsible for selling now, and who will be as the company scales
A compelling product isn’t enough; a scalable, realistic go-to-market plan is a must for long-term success.
Deal Terms Go Beyond Valuation
It is easy to have a single-minded focus on valuation, but the fine print matters just as much. Key terms can significantly affect your return down the line. Pay close attention to:
- Option pool size and structure: understand the percentage of company equity set aside for future hires, which affects ownership and potential dilution.
- Investor rights and protections: make sure you know expectations and triggers that give investors access to information, influence over key decisions, and safeguards against dilution.
- Governance controls: make sure you’re comfortable with how decisions are made in the company and what authority investors or board members have in those decisions.
- Liquidity preferences: know where you will be positioned in the order and amount investors are paid back in the event of a company sale or liquidation.
One of my favorite takeaways from the session was this: “Due diligence is not about eliminating all risk—it’s about understanding the risks you’re taking.”
Early-stage investing will always involve uncertainty. Your job during diligence isn’t to find every answer. It’s to surface the known knowns, identify the known unknowns, and assess whether the founding team has the skills and judgment to navigate what lies ahead and handle the inevitable unknown unknowns.
Startup founders take risks to build something from nothing. Investors take on risk, too, but a good due diligence approach can mitigate some of these risks through thoughtful evaluation and partnership.
Want to dig deeper into early-stage investing? Click here to explore ACA’s full library of resources.
Interested in connecting with our regional angel network, EC Angels? Let’s talk.
