Due Diligence with DVRGNT Ventures

Check out how we handle the diligence process and our latest investment in Precision Epigenomics

Due diligence is an important part of the venture process because it's extremely time consuming and sometimes thankless work that more likely than not will end up with no investment. 

At DVRGNT Ventures, we are founder-centric, focused on making their entire experience with DVRGNT Ventures as painless and transparent as possible. Building a robust process is an important part of our commitment to do everything in our power to ensure great results for our investors and provides some measure of de-risking of the investment.

DVRGNT Ventures way to do Diligence 

One common question from founders is, “What does the diligence process look like?” Understandably, founders need to know this as it’s a long process and extremely taxing but important for securing funding. 

The diligence process can easily become complicated, there are a lot of moving parts and if there isn’t proper communication with the founders and investors, it can make it a difficult process. The diligence process can change based on the startup but our outlined process is below: 

We generate leads either through inbound methods, such as submitted forms on our website, or through outbound methods via our network. The initial screening involves reviewing the pitch deck, startup, team and ensuring that the venture aligns with our thesis. DVRGNT Ventures wants to ensure we are investing in people and companies that we can get behind.  We’ll make a significant investment (more than just $$) in each company, utilizing our expertise and network to help propel the company.  Because of this, we spend time with the founding team, learning about them and their desires, goals, etc, in addition to what the company does.  One of the DVRGNT team acts as a sponsor and will advocate for it by preparing an investment memo and shepherding through the process.

After completing the investment memo, it will be reviewed by the investment committee. If everyone is on board, then it’s time to move forward, we start the due diligence process. 

A diligence questionnaire is sent out to the founder (and team) to gather more information on the startup. We schedule meetings to review the information and address any questions the team may have. Then we have a deep dive into their financials, traction, risk, exit opportunity and other key parts of the business (which depends on the type of startup they are). 

The findings are then presented to the investment committee for scoring. Based on the scores, we make a Go/No-go decision. Each team member rates the startup without knowing the others’ ratings to remove any influence or bias. We chose a rating of 1 - 5 because it makes the scoring more impactful and the goal is to stratify the answers. We also decided that 3 be used on special occasions ,where you really can’t make a decision. This way, we are able to get actual distinct scoring to drive decision making. 

Defining this process helped us understand the time commitments and necessary parts of diligence that will be important to share with founders. We respect the founders’ time and our goal is to keep the process as straightforward as possible, avoiding unnecessary steps.

Our Journey with Precision Epigenomics. 

Last month, we completed our first investment as a firm into Precision Epigenomics (PE), one of the most significant milestones  for any firm. The process involved many firsts but one of the most important for me included  executing on the  diligence process we had defined. 

Investing in PE presented an opportunity we couldn’t pass up. Our lead sponsor, Jeremy,  guided the entire process with support from the team. 

We developed an Investment Memo which provided a high-level overview of PE and its potential. The goal of the memo is to secure buy-in from our  investment committee. 

The committee analyzes the memo and confirms or declines interest . After the approval of the committee we commenced  diligence with the PE team by having them complete our detailed Due Diligence Questionnaire. Our first meeting covered PE’s products, regulatory concerns, intellectual property, market, traction, and more. There are often two  or more  meetings before we can confidently finalize our diligence report(s).

The reports are then sent to the investment committee. Each committee member must then anonymously complete our proprietary survey rating PE on a scale of 1 - 5 in the following areas: Market, Business Model, Team, Product Differentiation, Traction, Scalability, Financials, Risk and Exit. Once the surveys are returned, we then calculate a score for the investment. This data over time will provide numerous mechanisms to enhance our sourcing, evaluation, and execution of investments over time. 

Having a connection with the PE team made the process time-saving but it was extremely insightful for all members of the team. 

We know this is only the beginning of our journey but we are excited about what the future holds. As our team grows, we will continue to optimize our process and ensure that our investors and founders are at the center of everything. Watch out for our next investment.