Monday’s article highlighted EquityNet, an accredited crowdfunding platform with technology positioned to make the due diligence process more efficient for investors. Raising a big question: what exactly is the role of due diligence in investment crowdfunding? What are the mechanisms? Who’s doing the diligence: the Crowd or the Platform? When in the process? And how? Fresh, and rough around the edges, bear with me 🙂
Due diligence (“DD”): “Research and analysis of a company done in preparation for a business transaction.” Better diligence in the crowdfunding process stands to support better investment decisions. Naturally, crowdfunding platforms are investing heavily in these processes and marketing them as a key competitive advantage and differentiator. (In a market that’s saturated before it technically exists, value-added differentiation will be paramount.)
But all due diligence isn’t equal, of course. Platforms are approaching it from a variety of perspectives, and implementing different methods to augment the due diligence of deal flow. Let’s coin these various methods as “due diligence mechanisms” and look at two examples. A DD mechanism of CircleUp: leveraging domain expertise, it heavily curates applications, only accepting 2% onto its platform. A DD feature of EquityNet: it creates and surfaces contextual data, e.g. benchmarking, to support investors in more timely and effective analysis.