Institutional diligence is often described defensively, as something to withstand. It is more accurately understood as the beginning of a long relationship, conducted under conditions that reveal a great deal about both parties.
Preparation starts with internal consistency. Numbers quoted in a presentation, a model, a data room and a board pack should reconcile without explanation. Where they do not, the discrepancy occupies attention that would be better spent elsewhere.
Consistency across a long process builds more confidence than polish in a single meeting.
It continues with candour about weakness. Every business has areas that do not stand up well to scrutiny. Raising them directly, with a considered view of how they are being addressed, is consistently more persuasive than allowing an investor to discover them.
Consistency across a long process matters more than polish in any single meeting. The tenth conversation should describe the business in the same terms as the first, including the parts that are difficult.
Finally, management should be assessing the investor throughout. Governance, behaviour under pressure and expectations of pace are being demonstrated by both sides. A process that runs in only one direction rarely produces a good partnership.
This commentary is provided for general information and reflects the views of Wrotham Partners at the time of writing. It does not constitute investment, legal or financial advice.