Virtual Due Diligence

Goals

Obtain insights and case studies that show that the recent adoption of the work-from-home model has lessened the need for in-person diligence by finance companies (such as venture capital and private equity firms).

Early Findings

Virtual Due Diligence

  • Amidst the COVID-19 pandemic situation where physical distancing setups are in effect, investors are discovering improved ways of undertaking due diligence processes.
  • As an example, the U.S. International Development Finance Corp. is embracing the current operating environment to process highly developmental deals through its funding approval process.
  • Its social enterprise financing team has been engaged in video calls to perform due diligence with fund managers who are tasked with providing funding to various enterprises.
  • Finnfund is a private equity firm that has been engaged in several virtual due diligence sessions since the lockdown starts.
  • The due diligence process took five days and involves around 20 participants in various video conferences.
  • A financial analyst from the firm commented that doing the due diligence process virtually is surpisingly effective as they were able to understand better the companies that they are planning to invest on.
  • Finnfund also became more agile as a result of this method and is now considering implementing virtual due diligence for selected cases in the future.
  • Amidst the current situation, more private equity firms are engaging in deals to invest in technology companies.
  • Technology solutions such as virtual data rooms enable online due diligence to happen prior to the investment.

Summary of Findings

  • Our one hour of research provided some insights on the virtual due diligence processes that are being undertaken by financial investing firms amidst the pandemic.
  • Since social distancing protocols are in place, in-person gatherings are strictly limited and hence we have concluded that more virtual due diligence sessions are happening as investors continue to provide funding.
  • However, we did not find any evidence that more non-US investors are investing in U.S. companies since May 2020. Based on a report from Fortune, the reverse is happening as the U.S. has put in place more regulations before foreign investors can provide funding to U.S. companies. The intention is to protect the U.S. economy amidst the crisis.

Proposed next steps:

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