Once you think you’ve mastered a process, there’s nothing like a global pandemic to add a new twist. As I reflect back on the past eight months, it’s hard to believe that at the end of February, the Accion Venture Lab team was hosting our first LP Annual Meeting and sharing insights from our portfolio and the exciting new trends in the fintech for financial inclusion space that we were interested in exploring. Days later, our team returned to our respective countries and cities and faced lockdown and quarantine measures.
Like most investors, during the first few weeks of the global shutdown, we first focused on our own portfolio to ensure that they were well-supported, capitalized, and able to incorporate new practices to build resilience internally and to support their clients during this unusual time. By June, we felt comfortable enough to dip our toes back into the active deal execution space, but that brought up a number of questions. How exactly do we execute deals remotely? How do we build relationships and trust with entrepreneurs that we haven’t met in-person yet? Are we ready to explore new markets where we don’t have portfolio companies?
Up until COVID-19 struck, we prided ourselves in our ability and willingness to go on the ground, conduct in-person due diligence, meet with clients and partners, and make decisions quickly. Co-investors and later-stage investors would often look to our thorough due diligence process and subsequent investment as a vote of confidence for an early-stage venture. Now, in this new era, we were forced to make a tough decision: halt investment activities or reinvent our investment process. Like our portfolio companies, we decided to be nimble and restructure our approach to meet companies where they were (even if that was their living room) through a virtual process. During the pandemic, we’ve completed three remote diligence processes, in Africa, Asia, and Latin America, resulting in deals that will be announced soon! We became more efficient with each deal, and now we’re sharing what we’ve learned along the way with entrepreneurs and investors who are involved in remote diligence processes.
We identified four key areas where we needed to enhance our due diligence process while working remotely:
1. Getting a deeper understanding of the context in which companies operate
- We deepened our analysis of macroeconomic conditions in the countries where our companies operate and compiled monthly COVID-19-related statistics to better understand the perceived impacts on the business and core clients.
- We took a closer look at our investment thesis — which had just been refreshed at the beginning of the year — to determine which models could have overexposure to lockdowns and moratoriums, like lending businesses and agent networks, but more importantly, where we see newfound opportunity in resilient business models.
- We sought out and scheduled more calls than normal with experts, including regulators, investors, and consultants.
2. Leveraging technology to have the interactions we would typically do in person
- We conducted several Zoom and WhatsApp calls with founders and various members of the team, their advisors, and, in some cases, agents and field staff. We used this time not to only talk about the operational elements of the business, but also the culture and work style so we could validate capabilities and culture.
- We interacted with end customers and partners through video interviews and by asking for video footage of the customer journey. In one of our deals in Africa, we took virtual tours of client and partner sites to help validate the types of customers the company serves.
- Building relationships with founders and teams is important for us, but it is extremely hard to replicate or replace in-person, one-on-one interactions. We’re solving for this with informal chats over Zoom and WhatsApp, infusing as much human interaction as possible.
3. Involving the broader Accion Venture Lab team in reviewing company product design and delivery
- We brought in the broader Accion Venture Lab team early on and frequently throughout the assessment of the company and product demos, all using Zoom.
- Our Portfolio Engagement team expanded their reviews of technology and operations. This led us to design new resources for our internal tech reviews, which we are currently leveraging for a due diligence happening in Africa at the moment.
4. Collaborating closely with fellow investors and other partners
- We interviewed partners and clients to assess companies’ value proposition and their customer experience.
- We leveraged on-the-ground resources, like portfolio company founders, local co-investors, and external consultants, to assess value proposition. We relied on strong, local co-investors for a recent investment in Latin America. These co-investors gave us valuable insights and helped us overcome language barriers when sharing their interviews with relevant actors in the space.
- We are sharing objective data with other investors to pressure test our assumptions throughout the deal process.
Even once in-person interactions are possible again, we would like to keep some of these enhancements in our permanent due diligence processes going forward. We’ll continue to involve the full Accion Venture Lab team earlier in the assessment process — our full team loved hearing from the entrepreneurs directly.
We’ve also noticed that the shift to remote due diligence has been a difficult transition for entrepreneurs. Many have worked with investors in the past but managing multiple due diligence processes remotely became challenging over time. After reviewing our own processes, we put together this guide to help founders navigate the remote diligence process more smoothly.
Our team has been heartened to see how inclusive fintech companies around the world have risen to this challenge with creativity and resilience. As investors, we should follow their lead and update our investment processes so that we can keep capital flowing to businesses that need it now more than ever. We emerged from this process having refined the virtual diligence process and improved our team’s efficiency. With patience, flexibility, transparency, and organization, I think both investors and entrepreneurs will be more resilient post-COVID-19.