This article, adapted from a post originally published by the author in Inc. Magazine, is the first in a three part mini-series on deep dives. To read the next article see Deep Dive Mini Series: Coaching on How to Survive A Deep Dive Meeting.
If you are helping an entrepreneur raise money, there is no way you are going to avoid one or more “deep dive” meetings. Whether you are working with the company’s very first investors, or trying to build out the syndicate for a round, once a founder makes a successful pitch to an investor or group of investors, the next step is always more involved. Coming out of the pitch, most investors will ask to hold a longer more in-depth meeting to unpack the company’s story in greater detail. As most angels know, a lot of investors refer to this kind of meeting as a “deep dive meeting.” It is generally considered pre-diligence, not the beginning of the actual due diligence process. In fact, the main point of the meeting from the investor perspective is to decide if they want to do more due diligence. This means the main point of the meeting for the founder is to convince investors they do.
So how do you help a founder do that? Here are a few preparation concepts to keep in mind.
Deep Dive Basics
From a timing perspective, it’s a good idea to try to schedule this meeting quickly, since the company wants the pitch and the initial excitement fresh in investors’ minds. Delay translates to a loss of momentum and may allow investors the opportunity to become distracted by other deals.
Most deep dive meetings are a couple hours long. Time flies when a company has a lot of detailed material to talk about, so a shorter timeframe isn’t really practical because conversations will be intense and exhausting for everyone.
Deep dives are generally held at an investor site or a neutral location with some conference space, since most start-ups have limited office space, and the meeting would be distracting for the rest of the team.
Deep Dive Prep
Preparation for the deep dive meeting is key, and it will be very different from the prep a founder did for her pitch. Prepping for a pitch is a matter of rehearsing the presentation to fit within the investors’ pitching structure, while a deep dive meeting is much less structured and much less formal. The entrepreneur does not give a sequential walk through of a deck of her own design. Instead, she will mostly be reacting to questions on the fly. No matter what type of agenda the investor or entrepreneur tries to impose on these meetings at the outset, they always devolve into an unstructured Q&A within about 10 minutes.
Contrary to a pitch meeting, a founder will not be able to hide behind a slide deck or rehearse the flow of what she is going to say, because the discussion topics will be random and will jump around a lot. To successfully prep, all a founder can do is focus on marshaling her facts and supporting materials, and then study these materials so that she can converse, in depth, on all of the key topics she expects investors to ask about. Having lots of “appendix” types of slides and a detailed financial model on hand in case one needs to refer to them is great. However, I repeat: the founder will not be giving a pitch. The slides will only be there to help illustrate the key points the founder is making and to demonstrate that she has thought about and analyzed the key issues. I have seen as many deep dives that do not refer to any slides as ones that use a lot of slides.
Preparing to Hit The Main Points
Time really flies when prospective investors get going and riff off of each other’s questions. Don’t be surprised when multiple threads open at once and what feels like chaos ensues. It will be easier to respond to the chaotic situation if the founder remembers this fact: the reality is there are really just a small number of key issues that need to be resolved in an investor's mind. From my experience, the most common are:
- Questions around the team: why this team, why now?
- Questions around the market and the competition: are there enough customers with this pain?
- Questions around the solution: is this 10X better, faster or cheaper?
- Questions around the plan and the finances: what is it going to take to get this to profitable growth?
During the deep dive meeting prep, a founder will need to consider these and other specific issues she thinks will be important to her prospective investors. Once she has a short list, consider the two or three key points on each of those key issues that must be made. If a founder is able to deliver forcefully three key points on each of the key topics, that is actually an accomplishment – anyone who can prepare to do this will be prepared to have a successful meeting.
It’s More Than Facts & Figures
Keep in mind that these meetings are also as much about getting to know the founding team as they are about walking through the details. So for all the prep, it is still important for founders to be themselves and be comfortable. They should get a good night's sleep. They should show up early to settle into the room, wear comfortable business - appropriate clothes, and come prepared with the mindset of looking forward to having a great back and forth discussion about the team, the company and why they are passionate about the opportunity.
Up next in this series: How to navigate the actual deep dive meeting to a successful conclusion while avoiding falling into a death spiral.