A Different Approach to Due Diligence for Early-Stage Deals

By Dan Luscher, Managing Director, ADAP Capital

ADAP (A Different Approach to Poverty) is excited to be a program partner for the first-ever SEED gathering. We believe that early stage impact investing suffers from massive inefficiencies, and we look forward to gathering a diverse group of folks working hard to address these inefficiencies so that we can compare notes and double down on the best ideas.

ADAP will be leading a session at SEED on how to perform thorough, but quick due diligence. We recognize that diligence at the early stage needs to be fundamentally different than traditional investment diligence of later-stage companies. So we have developed and refined our “Four-Hour Due Diligence” progress over the last four years based on the following core beliefs:

• Early-stage investors who move quickly and decisively will be able to produce better financial returns and create greater impact over time.
• Many — perhaps even most — funders have an investment process driven by fear. They find reasons to say “no.” Our investment process is driven by confidence, and we look for reasons to say “yes” (even as we ultimately have to say “no” to far more companies than we say “yes” to).
• Time spent with entrepreneurs post-investment is critical, which is why we developed ADAP Advisory to focus on structured post-investment support of our portfolio companies.

The ADAP blog outlines the specific steps in our rapid yet rigorous diligence process, which is designed to take only four hours of the entrepreneur’s time (hence the name, with a tip of the cap to Tim Ferriss).

Social entrepreneurs have a very small window to make their business a success, and they shouldn’t spend most of that window responding to excessive due diligence requests rather than building their business. As investors seeking to help create financial returns as well as massive social impact, we need to be focusing as much as we can on the business-building process, not getting mired in the due diligence process.

ADAP hosted a Deal Room at SOCAP17 to showcase our rapid due diligence, and two great deals came out of that process. We are looking for opportunities to replicate this action-oriented approach at other events.

We look forward to discussing these concepts at the SEED conference in April and learning about what is working for other early-stage investors and entrepreneurs. Let’s work together to get more good deals done!

Dan Luscher is Managing Director of ADAP Capital LLC and ADAP Advisory LLC. ADAP Capital invests in innovative early-stage entrepreneurs who are working to eradicate extreme poverty. ADAP Advisory Services provides structured advice and support to companies to create the necessary foundation for sustained success.

Originally published at seedconf.com on March 19, 2018.