Not sure what to expect during the due diligence process? Here’s our step-by-step guide to due diligence from initial contact to investment.
All entrepreneurs who raise venture capital funds have to go through due diligence, yet it remains one of the more daunting elements of the VC process. We’ve outlined at a high-level how we approach due diligence to demystify the process and help you go in feeling prepared.
The goal of due diligence is pretty simple: to ensure that your company is a strong fit for our portfolio and a sound long-term investment. Expect the process to take three to four months, come prepared and organized with your documentation, and — most importantly — remember to tell the story of your business.
Phase 1: Understanding if You Fit Cortado’s Investment Thesis
Estimated Timeframe: 1 week
The first step in the due diligence process is verifying that your startup is not only a strong investment, but a good fit for Cortado’s investment thesis.
There are a few basic things that all VC firms look for in a potential investment: Are you technology forward and scalable? Are you operating in large markets and capable of providing 10x+ returns in three to five years?
In addition to those basics, Cortado has specific things we look for in potential investments:
- B2B technology focus
- Based in or Connection to Oklahoma or the Midcontinent
- Innovating legacy sectors such as life sciences, aerospace, energy, logistics, etc.
- Pre-seed to Series A
How to Prepare
- Check out a 5-minute explainer of Cortado’s investment thesis to develop an understanding of how your startup might fit with what we’re looking for.
- Fill out our intake form, where you’ll answer some basic questions about your company and submit your pitch deck so we can learn more. We’ll use this information to run through an internal scoring rubric to determine how strongly you meet the parameters of our investment thesis.
Phase 2: Digging into the Business Fundamentals
Estimated Timeframe: 2–4 weeks
If we decide your company is in line with Cortado’s investment thesis, we’ll set up an introduction meeting with one of our analysts and begin to dig into your business fundamentals. We’ll talk to industry experts and current/potential customers to get feedback on your product. We’ll dive into your industry to determine market size and trends, key players and competitors, and what unique differentiators your product offers.
During this phase, we want to gain an understanding of your basic financials, including your sales pipeline and unit economics. We will likely ask for follow-up meetings with multiple members of our investment team and have you answer a detailed list of diligence questions to help us better understand these things.
For those building biotech companies, we will also review current research about your target market as well as any clinical data or patents provided to us during this process.
How to Prepare
- If you have a highly technical product, put together a white paper that deeply explains the technology and have a demo ready to show the investor(s)
- Consider preparing case studies that clearly articulate the value your product provides to customers
- Have at least 1–2 customer references we can contact
- Have your own market research ready to share with us
- Know your financial numbers and be able to quickly answer questions about pricing, margins, costs, historic revenue, etc.
Phase 3: Pitch to the Partners
Estimated Timeframe: 1–2 weeks
Following the initial diligence phase, if we’re excited about the investment opportunity we will have you pitch to our general partners. This is often an intimidating step for founders. The most important thing we’re looking for in a pitch is that you can show how your business solves real problems for real businesses, that the market wants your product (with data to back it up), and that you are the right team to execute on the opportunity.
Your pitch is an opportunity to tell the story of your business. Why did you start your company? How are you innovating in your industry, and how are you going to bring your product to market? Illustrate your long-term vision, but also provide a more granular six-month plan.
How to prepare
- Refine, refine, refine your pitch deck. Practice makes perfect.
- Make the complex simple and focus on key takeaways for each section of your presentation.
- Practice Q&A with friends and family. Your answers should be direct and concise.
- Understand the team dynamics you’re presenting and make sure you present a united front!
Phase 4: Final Diligence
Estimated Timeframe: 1–4 weeks
If the partners vote unanimously to pursue an investment, we will conduct a final, thorough diligence. During this phase, be prepared for every stone of your business to be turned over. We will check for any outstanding litigation and run public record checks. Our team will look through your legal documents, accounting practices, and historical financials.
How to prepare
Setting up a virtual data room can simplify this step and helps to keep everything organized. Compile a secure online folder with all of your important documents, including, but not limited to:
- Legal documents such as articles of incorporation, certificate of good standing, bylaws, etc.
- List of employees and board members and key hiring documents
- Patents/IP information
- White papers
- 2–3 years of historical financial records
- Sales pipeline
- Key customer contracts
- Pro forma financials
- Cap table and documents related to previous financings
Phase 5: Investment!
Now, for the fun part. If your due diligence goes smoothly and we agree on investment terms, we will move forward with an initial investment.
Following investment we’ll start working to help position you for long-term success. We’ll set up a quarterly reporting process with you that includes update meetings and tracking of important metrics. We’ll also connect you to the plethora of resources we can provide including executive coaching, back of house (accounting and PR) support, office space, discounts on startup tools, access to our networks, and more.