(*Results may vary.)
A Counter-intuitive way to handle due diligence for grants
Grantors (and funders in general) want to get ALL of the information about your company before making a decision. While this sounds reasonable in theory, in practice it means due diligence can turn into a fact-finding mission for months and months to the point that the project you planned is no longer relevant. This is horrible for you but also a bad outcome for the funder as they missed out on an opportunity.
How to avoid the fact finding mission and get better results.
First, let's understand why funders do this even though it leads to bad outcomes for them. Why do they shoot themselves in the foot, so to speak?
Human nature. Don’t we all want to have a little more information before we make a decision? We want to look at one more Yelp review, ask one more person’s advice and have the weekend to think over which job offer to take. These are delay tactics because we don’t want to make a decision.
It’s not because grantors are bad. They are just human. And humans want to delay. Maybe, just maybe, if they ask for one more document it will make everything clear.
It won’t. In fact, the more data they get the more confused they will be. Why did the revenue spike in 2017? You wrote in your 2021 financial model that x would happen but in 2020 it said y. More data never leads to clarity. Data leads to noise. Synthesis leads to clarity. And synthesis is your job, not theirs.
Remember the grantor is the customer. Imagine if you went to the pharmacist and they said, well, it sounds like you should take Ibuprofen but here are 2 dozen research papers you can dig through to see for yourself. No.
Synthesis is your job, not theirs.
Left to its own devices, a few innocent due diligence questions lead to a sprawling fact-finding mission. More and more of your staff get pulled in to answer questions about what happened 3 years ago and distracts them from their real job of building the company. It also uses up the grantor’s time.
Your job is to coral this process for the benefit of both your company and the funder. Remember: At the end of the day, the funder needs to make a binary yes/no decision about your organization. If the information doesn’t help them make a yes/no decision it’s extraneous information.
Don’t answer questions if it wouldn’t change the funder’s decision.
But how to do this in practice? Here’s an idea: At the first meeting, in the nicest way possible, say that you have been in many due diligence processes. You know that sometimes due diligence processes can get out of hand. You want this to be efficient so that you can go back to building and so that you don’t waste the grantor’s time. They have to make a yes/no decision about your organization so let’s focus on questions that would help them make that decision.
You might think this sounds rude but it's actually direct. And people respect people who are direct with them. A big complaint of funders is that they can’t trust grantees; grantees are always brown nosing and funders can never tell what grantees are really thinking. Also, people want to work with people they see as peers. Peers don’t grovel in front of each other (seriously, when was the last time a friend of yours groveled in front of you?)
Which brings me to the next key of due diligence. Meet them in person/video call as soon as you can. If they just send you questions, ask for a meeting to “make sure you understand the context” or you “have some questions you want to clarify and it would be easier in a video call.” People work with people they like and grantors are much more likely to like you if they have seen your face (even on zoom).
Meet them before answering questions
Even though you originally stated you wanted to keep the due diligence process efficient, grantors, left on their own, will migrate back to their old ways. Don’t let them do it. Push back against excessive questions. If they send you a list of questions that seems excessive you can respond saying any of the following:
Continue to resist excessive questions.
If you can add these guidelines to your due diligence process I expect you’ll increase your win rate while reducing the burden of due diligence and reducing the time it takes to get cash in the bank.
More cash. Less effort.
What could be better?
12/20/2021 05:42:20 am
This is great advice, we certainly could have used these suggestions in some of our past fundraising to huge effect. Thanks Kyle
12/2/2022 10:55:42 pm
<a href="https://cadivya.com/" >Due diligence</a> process involves researching, analyzing and verifying the accuracy of financial and non-financial aspect of business.
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Kyle founded Grant&Co after running a biogas company in Kenya for 5 years. We raised a lot of grant capital there. And now we help other entrepreneurs raise capital.