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Due Diligence

9 Free Tools to Help With Investment Crowdfunding Due Diligence of Startups

image of someone typing on a laptop -- used to illustrate post about investment crowdfunding due diligence

In a recent post, I walked through a “speed dating” style review of seven potential investment crowdfunding startup investments (recently offered on Reg CF platform Republic), showing some examples of using your personal experience and perspective as a way to quickly narrow your choices as a first pass for investment crowdfunding due diligence.

This post will highlight 9 resources to consider once you’ve narrowed the field, and start digging deeper into prospective investments, and after reviewing the material provided by the startup on the investment crowdfunding platform.

Note that these tools are not sufficient by themselves! But they can be quite useful in rounding out your picture and impression of the company and the business (which are often two different things — the company meaning the team and the structure, the specifics of the business they’re in may change quite a bit over time).

A lot of what’s provided by the startups on a given platform will (understandably) revolve around financials. And while the numbers are of course very important in making sense of the business model and the assumptions the company is making about the future, they can ultimately prove quite meaningless for arriving at anything approaching a precise valuation, especially for early-stage companies.

Instead, what often matters far more can be quite challenging to quantify in a spreadsheet, like the quality of the team (especially the founders) , and the reputation of the product among its earliest customers.

(This is quite a different situation than some other kinds of investment crowdfunding due diligence, such as real estate, which is far more dependent on detailed and thorough financial analysis and well-understood valuation drivers.)

The always-insightful Paul Graham puts it in the proper context in describing angel investing:

Don’t spend much time worrying about the details of deal terms, especially when you first start angel investing. That’s not how you win at this game. When you hear people talking about a successful angel investor, they’re not saying “He got a 4x liquidation preference.” They’re saying “He invested in Google.”
Here’s just a few examples of the kinds of questions you might ask about a startup as part of your investment crowdfunding due diligence before investing:
  • Are they likely to be able to attract great talent?
  • What does the culture value? (This may or may not match what the company says it values!)
  • Are their growth numbers a result of intense customer enthusiasm, or aggressive advertising?

Now you can of course ask these kinds of questions directly to the company, but as they say in journalism, “trust, but verify”. Here’s a list of 9 (free!) tools to consider to round out your perspective on a startup as part of your investment crowdfunding due diligence:

  1. Crunchbase. Crunchbase aggregates a ton of useful data about thousands of startups, including information about prior fundraising rounds and a nice roundup of relevant press clippings. Are all the listed founders still with the company? If not, why? It’s also a great way to cross-reference founders with other companies they’ve worked at.
  2. Glassdoor. If you haven’t heard of Glassdoor, it’s a site where employees can anonymously review their employers. As with any public review site (eg, Yelp or TripAdvisor) there will always be some examples of inaccurate or even malicious reviews, but Glassdoor can be a valuable window into a company’s culture and priorities.
  3. Follow.net (see also Compete or Alexa). These are three similar tools for understanding how a website performs over time, how their traffic compares to competitors, and how heavily they use advertising. Is the story told by one of these tools the same as the story the company is telling about their traffic?
  4. The company’s Careers/Jobs page. I like to look at the posted job descriptions. Are they boilerplate from HR? Are they a list of job duties? Are they a call to action to join a noble and daring mission? Do the positions they’re hiring for match with their stated plans and priorities? Based on how they present themselves, would you want to work for them?
  5. LinkedIn. In addition to seeing more about a founder’s background and experience, this is a helpful way to get a feel for how they present themselves professionally. Does it match their industry? Is it consistent with how they present themselves in the investor materials? And there’s of course a lot of other info to glean via LinkedIn, but the one I look for first myself is whether LinkedIn surfaces any shared connections. While the odds may be slim you share a direct connection with one of the founders, if and when it does happen, it can be an incredibly useful way to gather some firsthand intelligence.
  6. Twitter. While you can potentially learn something about individual founders or team members via Twitter, I’m more interested in the company’s twitter account. While raw numbers (like number of followers) can be important (especially if the startup’s success is predicated on a passionate fanbase), personally I’m looking for the conversations the company engages in “officially” on Twitter. It’s become a de facto customer support channel for most companies, and you can learn a great deal about a company by how they engage on Twitter (see this thread for how not to do it…)
  7. Owler. One of the more interesting (and difficult) questions to answer about a company is “who are its competitors?”, and that’s because you’ll often get quite different answers depending on who you ask. While it’s by no means guaranteed to be comprehensive, I’ve found Owler quite helpful for quickly coming up with a list of likely competitors for just about any company. Comparing some of the things on this list for several competitors can help you understand whether the company you’re considering investing in is as special as they probably claim to be.
  8. Google Video Search. A quick Google Video search for the company and/or the founders can often turn up things like conference talks, panels, or media interviews, which can be very helpful for gauging how key team members present themselves, and how they talk about the company (just as helpful can be footage from them at a previous company or role). You’ll also often find clips from various marketing campaigns, which can help you get a feel for how they present their brand via video.
  9. Github. If you don’t already know what Github is, you may not get a lot of value out of looking at it as part of your investment crowdfunding due diligence. In a nutshell, it’s a repository where millions of developers store their source code (some publicly, some privately), and it’s where a ton of development activity takes place in the open source community. If you’re evaluating a technology company (and especially highly technical founders or team members), Github can give you some helpful insight: by way of analogy, Github is as important to developers as LinkedIn is to sales people. It can be a resumé, a portfolio, a professional profile, and a showcase for side projects, all at the same time. If you’re not particularly technical yourself, you might ask a friend or acquaintance that is what they think of the team/company on Github.

When it comes to investment crowdfunding due diligence, it’s important to balance your interest in digging deep into a company’s background to evaluate it as an investment with the relative amount of money you’re putting at risk. If you’re looking at a $100 investment, exhaustively reviewing all of these as well as the materials provided by the company is probably overkill. On the other hand, if you’re considering investing a few thousand dollars (or more) then a few hours spent doing this kind of background research might help give you confidence you’ve done your level best to increase your odds of seeing a return on that investment.

What external resources do you use for investment crowdfunding due diligence of startups? Let us know in the comments below!

Have a question about crowdfunded investing? Want to learn more but aren’t sure where to start? Ask other investors on our investor forums. You can also explore more than 80 crowdfunding investment platforms in our database and learn more about the nuts and bolts of crowdfunding and alternative investing on our blog.

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