I hated due diligence, but after 15 years of investing, I now love it — (and think entrepreneurs should do, too.)

Due diligence, or DD in short, is a systematic review and analyses of a business, and the identification of any risks to inform your investment decision. Boring.

It involves projections, audits, technical issues, lawyers, a lot of uneasy questions, sometimes with unsatisfactory answers. You could do it on your own, but if you are investing other people’s money, as VCs do, you need to make sure that all bases are covered with able experts and professionals.

And this entire process happens after you are already excited about a business, and pending the results of the due diligence exercise, hoping to make that investment.

With all the serious suited up people around you, trying to poke holes into an idea that you really loved, the exercise can be very demotivating.

Due diligence forced me to face reality and killed the magic.

A lot of investment opportunities can look amazing at first. And inded your gut feeling is important, but a decision with an affirmative DD is a must. The DD can sometimes be disappointing after months of work with negative results. But rest assured that a negative DD outcome is much better than a negative investment return, which often comes with more headaches than just a financial loss.

But here are 3 reasons why I now love due diligence

DD, as you know see, is a very critical part of your successful investment making decision. But here are a few more personal reasons why I learned to love the process:

• It might be the best part of early stage investing. You learn from the founders, your co-investors and experts around you about brilliant new ideas, different approaches to look at opportunities.
• You learn to appreciate risk. DD helps you not only identify risks, but also see opportunities to mitigate them, some which can lead to great growth opportunities or barriers for your competitors.
• The close review shows you how you can contribute to the business with more than just your money and helps you build a closer working relationship with the founders.

You feel great about it afterwards. Knowing that you’ve done your homework and you can fully stand behind your decision, is a fantastic feeling, even if you are a solo or an experienced investor.

And here are 5 quick tips I learned along the way.

• Use the process to assess the team’s strengths, weaknesses, cohesiveness and capacity to pivot.
• Know what you are looking for and your red flags. This will save time both for you and the founders.
• That said, don’t rush. Take your time. Sleep over the answers and don’t hold back any quesiton that you feel is important.
• Ask for outside help if you don’t understand something or lack the expertise.
• Don’t over do it, especially for early stage investments.

And remember, the experience of the DD journey is as important as its outcomes.

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