“Places, Please!” Organising A Deal Team

By hban.org
Tuesday, 27th March 2018
Filed under: Year2018

Even with a right-sized approach, every time I get into a project, I am always reminded that diligence is still a fair amount of work. At Launchpad we estimate that we spend around 40 person hours on a typical diligence process by the time the project is completed. If you are dealing with busy investors who are volunteering to do this work, burnout is a real risk.  

6 Ways to Manage a Deal Team

Given the number of deals we do in a year and the pace at which we move, we cannot afford burnout. So we work to manage it in six ways:

  1. We utilise a larger overall team size consisting of a dozen or more people organized in small sub-teams working in parallel;
  2. We base involvement on an opt-in approach where people self-select and volunteer as their passions dictate;
  3. We don’t move forward unless there is spontaneous enthusiasm and interest from enough volunteers;
  4. We let people choose their area of focus so they can be in their area of expertise and comfort zone;
  5. We augment teams by tapping uninvolved investors for discrete questions and input on specialty topics; and
  6. We are clear about the process and the deliverables so that people don’t waste effort and do more work than is absolutely necessary.

Still, it is a lot of work. We begin the pre-diligence process (i.e. deep dive meeting) on 20-25 companies a year, and push through to final due diligence reports on 8-12 companies a year. So it helps in our case that we have a large pool of 150 investors to recruit from. We can arrange it so our investors do not have to participate in diligence more than once every 12-18 months unless they want to.  

Christopher organises most of our diligence teams, so let’s ask him how this works and what advice he has on the process.

Christopher, where do you start when forming a team?  

The team forms in a couple stages. Overall, our process is to start wide, and end wide, but be more narrow in the middle. By that I mean:

  • All our investors see the company pitch,
  • All see the final diligence report and get a chance to soft-circle invest,
  • But, a smaller number are involved in the diligence sausage-making in the middle. 

Here is how we do it:

During a pitch we ask all investors to indicate their interest level. Indicated levels can range from “not interested” to “would consider investing” to the highest level of interest, “willing to help with diligence.” We also ask people to let us know if they have particular resources or connections that might be helpful to a company.

Once we have those investor indications of interest, we do some number crunching.  We look at:

  • Total absolute interest levels
  • Relative interest levels on a percentage-of-attendees basis
  • Skill level of those interested (because if all our experts on the subject hate it, but the uninformed love it, that can be a problem)

Based on these three indicators, we figure out which companies have enough critical mass to merit a deep dive meeting. At one of our monthly group meetings, it can range from none to all three of the presenting companies making the cut, but typically two out of the three presenting companies will earn a deep dive.

From there we get some possible deep dive dates from the company and then put it out to all the investors expressing interest in the form of a deep dive scheduling poll. And then we do some number crunching again to find the deep dive date that is going to have the largest and strongest team we can field. Typically, that results in a deep dive meeting of anywhere from 10 to 25 investors, with 15 to 20 being the normal attendance range.

Before the deep dive meeting ends, we ask the CEO and her team to give us the room and we take the temperature of the investors.

  • If no one really likes the company, we are done.
  • If a few people like it, but not enough to form a team and no one wants to step up as a deal lead, then we are done.
  • If a plurality like it and want to form a team, and we can find someone to volunteer as a deal lead, then we take down all the names and the deal lead is off to the races on forming the team, assigning the roles and laying out the project plan.

How do you document the assignments?  

Regardless of outcome, we always send out deep dive notes which capture the deep dive discussion in a Q&A format, and also capture the next steps. If the next steps are that we are not moving forward, we note that. If we are moving forward, we note who the lead will be and sketch out the volunteers, sometimes even noting who is going to cover which topic areas. We email that information out with a note that volunteers should stand by for further communication from the deal lead. Then, off-line, we coordinate with the deal lead on getting a team organized, building a project plan and getting a “next steps” email out to everyone.

What if you don’t have enough expertise in the room? What do you do? Do you ever hire experts?

Venture capitalists will sometimes hire outside experts to help with their diligence, but angels and smaller funds generally cannot afford to do that. They must rely on their own expertise and connections to evaluate deals. Fortunately, investors tend to like and be drawn toward companies in their area of expertise, so your best experts for any given company tend to show up and volunteer. And, we pay a lot of attention to the topography of skills in our group and try to focus our deal flow and pitching companies exclusively in areas where we have competence.  

Sometimes, for one reason or another, you won’t have all your experts in the room at a deep dive. So you need to go out and manually recruit your experts to help fill out the gaps with the team. If you cannot get your experts to engage with a deal, that is a big red flag. It is tantamount to having the people who know most about the subject like the deal the least. That is pretty telling. In those situations, it is best to set the opportunity aside and move on to something else. Investing in areas where you have no expertise on the diligence team is a fool’s errand. It is initially a waste of valuable human capital, and then later, invariably proves to be a waste of valuable financial capital.  

If your team’s inherent expertise is not sufficient, you may not need to give up or hire experts. If you can get the word out to people that you are looking for subject matter expertise in a certain area, you will be surprised at what you can find with a little networking. Angel investors are often very connected people who are good at bridging to other connected people. Be sure to tap into the power of that network. And don’t forget significant others - we once found much needed expertise in the spouse of an investor.

Once you have a deal lead and team, what do you do next?

Our group manager works with the deal lead to:

  • Familiarise him/her with all the tools and checklists available,
  • Look at the calendar to put an overall plan together,
  • Set dates for key items like interim status calls and first draft of report,
  • Help get workspaces like shared folders set up, and
  • Work on the next steps/call to action email to the team.

How involved that collaboration is depends a lot on the experience level of the deal lead. If they have done it many times before, it is pretty hands off. Either way we are looking to respect their own personal style of working and make sure they have the tools and info they need to be successful, as well as offer a good experience to their fellow investors.

Sounds basic, what’s so hard about this?

The basics are easy. Doing it well takes a little practice. The goal is to use both investor and entrepreneur time efficiently. You want to avoid confusion, duplication of effort, and diffusion of responsibility. You want everybody to own something and everything to be owned by someone.

There are lots of little tricky spots to trip you up; for example, you need to make sure you:

  • Confirm team members and topic leaders so that you don’t find out two weeks into the project that no one is working on competition or the financial plan
  • Have collected all the sub-teams’ information requests so that you can hit the company with one consolidated request rather than have every sub-team chasing them separately
  • Know about vacations of key players on your team and at the company
  • Don’t accidentally invite the company to the investors’ data room
  • Don’t copy the company on key investor communications, and
  • Keep calm and keep your perspective throughout the process.                    

It all gets easier with a little practice. Most new deal leads tell me they enjoyed leading a deal much more the second time through. And the most fun of all is when an experienced deal lead ends up on a deal with a great team, where everything comes together well and ends up in an enthusiastically positive outcome.

This article was republished with the permission of the Seraf team. Seraf provides portfolio management tools for angel investors. Seraf’s intuitive web dashboard gives angels the power to organize all of their investing activities in one online workspace and analyze performance for greater exit potential. Built by angels, exclusively for angels, Seraf puts investors in control of their portfolios and makes it easy to share with colleagues, advisors and family.