EFFECTIVE DUE DILIGENCE - often harder than you think!
To undertake due diligence (“DD”) when considering investing in a new project is paramount. However, in reality, to do this well can often be harder than one imagines, due both to the amount of time, energy and money required to carry out full-fledged DD, and also to the fact that a project’s promoter typically tends to set rather tight deadlines which, if not adhered to, can lead to the loss of this “great” opportunity!
Actually bringing together the two sides, a project’s management and one or more investors, is, in the end, what dictates the project’s success. Giving weight to relatively similar DD factors from both sides is perhaps the most critical factor in making this happen. DD congruence is key!
Finding a solid and comprehensive approach to the execution of DD can be a challenge. On the one hand, there should be enough rigour for the investor to feel reasonably confident that he/she is not taking bigger risks than necessary. On the other hand, a realistic DD process should be relatively speedy and smooth, and not require excessive resources.
How might one cope with this dilemma? Here is my own experience from S. Ugelstad Invest (SUI). A caveat may be needed at this point, before going further. Smaller, relatively entrepreneurial organisations like SUI may find some relevance in what I am about to share. Speed is very important, but it’s also necessary to be relatively rigorous and not to use resources excessively. After all, this ability to move
