Behind the Scenes: A Look Into Talanton’s Due Diligence Process
Photo by Talanton
Q: Why is due diligence so important?
A: When you meet entrepreneurs who have been motivated to start a company to do good in the world, they often have a compelling story, and more often than not, a purpose-driven character and a good dose of charisma. It’s an immediate draw, and our first instinct is to help. But the due diligence reveals the richer, more holistic story, hidden in the financials, the key performance indicators (KPIs), the policies (or lack thereof), the interviews with staff, clients and suppliers. To make a good investment, due diligence is paramount.
Q: How long does due diligence usually take?
A: That really depends on the company – how ready they are for investment and how responsive they are to our requests for information. We understand that small growing businesses need to raise capital, but this takes time and energy away from core business activities. We have designed a phased stage gate due diligence process that stair steps the work companies need to do. Also, almost everyone on the Talanton team has extensive field experience and knows what a challenge it is to conduct the early stages of due diligence sitting in an office halfway around the world. At certain points during the due diligence process, one or more of Talanton’s partners travels to do site visits. We also rely on our trusted strategic partners, accelerators on the ground like Sinapis, to do additional third–party due diligence and verification for us. All that said, it’s hard to give a definitive timeline, but if all cylinders are firing, it could take as short as three months or as long as six or more months.
Q: How do you connect with client management teams in country?
A: Alongside the onsite visits that we do, we are consistently in communication with client management teams through email and video calls. How responsive they are with long-distance communication is an important part of our assessment, since the same responsiveness is expected for updates and reports to our own investors if we decide to invest. We also connect with the companies through our African-based strategic partners, and often will use other individual consultants or industry experts in the country. Having multiple touch points with the company is part of good due diligence and strengthens the network of relationships.
Q: What are the key pieces of information you look for to assess if they are the right fit?
A: We conduct deep dives into four major categories when we conduct due diligence:
Impact First – We look at the company’s vision, social mission, KPI’s related to impact and then drill down on how they have executed on those things as well as their forecasts.
Governance and Management – We assess risks associated with the management team, the Board, company policies, culture and administration.
Market and Production – We assess risks associated with market conditions and production capability, and the company’s operational ability to execute the project.
Investability– We look at all financial aspects of the company – historical and projected.
In addition to these four, there is a fifth piece that we consider as we go through due diligence: the management and technical support that Talanton and our network can provide to the company. Often this doesn’t fully materialize until we get through the entire due diligence, but it’s an important consideration for our team.