Business Model Innovation - Social Venture Investment Due Diligence
Project Example | Nonprofit Business Model Innovation
Impact investment due diligence
Context
My client was seeking to expand its impact and generate financial returns through investment in promising early-stage social ventures. It needed both a strong due diligence approach and support in conducting rigorous due diligence to evaluate investment options.
Key Question
Which of our early-stage social venture investment options are most likely to become viable businesses?
Solution
I developed an approach for evaluating 12 potential social venture investments and led due diligence teams in performing the research, analysis and recommendation synthesis. Activities included:
- Development of due diligence approach and templates.
- Identification of critical "what-we-would-have-to-believe" hypotheses and structuring of analysis required to validate hypotheses.
- Interviews with the entrepreneurs.
- Management and coaching of client staff to conduct hypothesis validation analysis and financial modeling.
- Development of investment memos.
Keys to success in this process included:
- Focusing on what matters; not "boiling the ocean." "What matters" in due diligence are the assumptions that, if proven wrong, would change the invest/don't-invest answer. Identifying up-front the critical hypotheses we would have to believe, filtering out the ones in which we have reasonable in-going confidence, and then rigorously raising our confidence in the remainder helped to maximize impact with available resources.
Results
My client made convertible debt investments in several ventures based on my recommendations.
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