Amid Covid-19, Digital Diligence & Next-Gen Tech Keep Investors Ahead
The schools are closed and servers are overloaded with millions working from home, and our hospitals are out of supplies. Tens of millions have been laid off, and small businesses that were struggling well before the virus are now being forced to close for good. Yet amongst the anguish in this unprecedented time lies the surprisingly stable, if not booming, venture capital & startup industry.
And while everyone is talking about the virus, its magnanimous effect on our healthcare system, the public markets crashing, the impending recession, and now the tumbling oil prices, a subtle technology revolution is underway.
But with all these new Corona-fueled initiatives springing up and taking the spotlight, there are tens of thousands of startups that are struggling financially — whether they are tech or hardware-based. Their investors debate whether to double down or cut their losses, an increasing number of alternative lenders look at unsecured high-risk high-reward structures, and even family members are being dragged into the ring to help keep the visions and dreams of these founders alive. But despite which route these investors and startup teams go, one thing part of this process remains constant: due diligence.
COVID-19 has drastically impacted the Due Diligence process for VC’s and Angel investors (i.e. making sure the startups they plan on investing in are not just two happy-go-lucky founders that are quick and witty with their responses). These investors are among the many millions across a variety of industries who now must rely on technology to substitute for face-to-face interactions. VCs face staff shortages and remote offices slow down the processing of deal flow. On top of the evergrowing tasks inside the firms, new founders seeking bridge investments are flooding in from all channels. Tools such as the TABS Suite help establish a new or stronger initial screening process and allow for Investors both big and small to significantly augment and shorten the diligence process by providing a holistic and in-depth qualitative report on the strengths & weaknesses of the target company. In times like these where the Founder(s) and the Investment team can’t sit face to face to meet and review, TABS’ complex machine learning algorithms also chart personality fits and provide AI-powered document verification. In less than a few hours, the Investment team can have a 20 to 30-page detailed diagnostic report in front of them, per company.
Danny Crichton of Tech Crunch pointed out that “with other investors departing the market, deal terms are getting better, the competition is less keen, investors can do more due diligence, and there are a lot of companies being built that have great growth prospects and are going to survive this global pandemic. It’s the VC equivalent of buy (actually) low and sell high.” For those investing during this current economic climate and for many years to come, digital diligence will be an integral part of the process.
Mayflower Ventures, a micro-fund being formed by Wall Street Veteran Marshall Sterman has already made the decision to integrate a Diligence-as-a-Service as part of their investment process which pitching to investors for the fund.
“Both the committed and prospective LPs love the fact that instead of asking for higher management fees to hire an analyst team in house, we are making smart lateral decisions to use a powerful software like TABS to strengthen and accompany our own internal diligence processes,” Sterman says.
Next-Gen technology, the most commonly known ones being AI and Machine Learning, has opened the door to more comprehensive analytics in a variety of industries worldwide. Companies are now using data analytics and digital tools to strengthen business resilience, customer relationships, technology systems, and operations, while also developing algorithms to assess new businesses to reduce the risk of lost time and capital. The TABS Suite even goes one step further and provides a Valuation Estimate for the company in question through a series of nested and intricate algorithms. Whether it’s used to conduct a screening and a more detailed follow up on some, or even just to double-check existing notes & decisions, Diligence-as-a-Service (DaaS) platforms are becoming the hallmark of responsible investing.
The shift to Diligence-as-a-Service platforms is evident. Just a few days ago, Underground Cellar’s CEO Jeffrey Shaw told the TABS Team on his Assessment & Valuation follow up call that he was happy to have scored well above an 8.0 since an angel investor that mandated he go through the process as part of diligence had promised him $50K should his score pass that [8.0] benchmark. The alternative, was a much smaller check coupled with some unfavorable terms.
Investors need evidence over opinion, and it’s frightening how many angels and established firms/incubators are still taking referrals as weighted opinions. Using Diligence-as-a-Service platforms like the TABS Score can provide this for investors while also making sure they don’t miss any crucial elements.
Platforms like the TABS Suite are even seeing an uptick in utilization by startup consultants, ranging from financial services to startup lawyers to fundraisers.
“The way we do business has changed considerably in recent weeks as we spend more time online than ever before,” says Stuart Bernstein, CEO of Solve For X. “TABS has empowered our clients to take stock of their readiness for due diligence and build a roadmap for successful raising all while maintaining the safety of working remotely.”
Both Startups and Investors seek some measure of certainty, especially during these times; whether it be a rational valuation or a potential new opportunity. For more information on what this process entails and its benefits, check out the TABS Suite: Diligence-as-a-Service overview.
The TABS Suite is a product of Frontline Strategy Ltd. To learn more, visit us at www.tabsscore.com
Stay safe out there.