We need to change the way due diligence calls end.
By Brad Feld, contributor
Recently I’ve been on the receiving end of a bunch of due diligence calls. Some of them are for companies I’m involved in, some are for entrepreneurs I’ve worked with in the past and some are for other VCs I’ve worked with who are raising new funds. I view these differently than reference calls — I won’t do “employment” reference calls for anyone — because they are about investment and a long-term working relationship.
I experience two types of due diligence calls: (1) Confirmatory calls and (2) Investigative calls.
The confirmatory calls result when someone has clearly made their decision and is just checking the box of “I’ve done my due diligence.” The investigative calls tend to be much more substantive, often happening well before a decision has been made.
In most cases there is either a script or standard set of questions. The interesting calls are the ones where the person on the other end clearly knows how to interview or uses a method like “five whys” to really get at the core of something they are interested in. I especially enjoy the ones where the person is actively developing a relationship with me, rather than just collecting data.
But on many of the calls, there is a weird question at the end. It goes something like “Is there anything I didn’t ask you that I should be asking?” For a while I used to try to be polite and engage with the question. But at some point I realized it was a stupid question that someone included on a “how to do due diligence” form from 1961. So now I answer it simply with “nope.”
Here’s why I think it’s a stupid question. You are calling me for diligence on someone. Presumably you have specific things you are interested in. You’ve either done research on our previous relationship or you want me to fill you in on that. You then use this to pursue whatever line of questioning you have. If you are inquisitive and capable of reasoning, my answers will open up more questions. Eventually you will have enough information or will have reached a conclusion. If I’ve been doing my job, I’ve been concentrating on answering your questions, not trying to follow your path of inquiry.
Now, when we are at the end of the inquiry, you ask me an open ended question in search of something magical. Maybe I’ll finally tell you the deep, dark, negative secret about the person that I’ve been withholding. Or I’ll come up with some incredible insight about the person that hadn’t come out in your previous line of questioning. I suppose this happens occasionally, and maybe it’s worth asking the question just on the off chance that something yummy will pop out. But I just find this an annoying way to end the conversion, so my answer from here on out is “nope.”
Brad Feld (@bfeld) has been an early stage investor and entrepreneur for over twenty years. Prior to co-founding Foundry Group, he co-founded Mobius Venture Capital and, prior to that, founded Intensity Ventures, a company that helped launch and operate software companies. Brad is also a co-founder of TechStars, and blogs at www.feld.com