DUE DILIGENCE
How do I evaluate potential investments with a focus on girls and young women?
Tips
Tools
Checklist
Additional Resources
- TIPS
Use of human-centred design
Considerations for investors
Using Human-centred design (HCD) can be a critical success factor for investors looking to reach at-risk or marginalised communities. HCD is the process of gaining a deep understanding of people (users) and factors that influence their choices and decisions in order to design products and services that meet their needs. Gaining deeper knowledge about a business’s target market — especially when it includes hard-to-reach communities in emerging economies — may help to de-risk investments. Furthermore, there is value for investors in supporting the development of leadership capacity in ventures to identify and address user needs and market opportunities. So how can investors need to build HCD into the due diligence process?
“Human-centred design can be one of the keys to business success (including getting to failure faster, which can be just as useful) and it is almost NEVER budgeted in.”
– SPRING Investment Director, Suzanne Biegel
Based on SPRING’s experience and interviews with investors, questions about a businesses’ use of HCD should be asked during the diligence phase. If a business has previously applied an HCD approach, this can serve as input for primary due-diligence for investors and partners. A venture that is already following a solid HCD process should be able to speak from experience about the impact on the business so far. An investor can then assess the venture’s continuous commitment to keeping HCD in their business plans. If a venture does not use or understand HCD, an investor can take a lead role in introducing it by suggesting to budget in costs and time to consult users and stakeholders in the design and refinement of products and services. A budget to introduce HCD within a business may include staffing, consulting (e.g. with a specialist agency, such as fuseproject) as well as research costs.
“The main criteria I use to look at gender impact of my investments are about customers or users, and the degree to which women and girls have been included in product and service design matters a lot. I have been doing this for eight years. It is really less about target number of beneficiaries, but the degree to which they are involving their customers throughout the process. Of course, I also look at whether and how women and girls are involved in management, whether the company is hiring women and how/where, and what is the relationship between that management/employee base and the customers.”
– Roo Rogers, Partner at fuseproject
Venture insights
What should investors have asked?
Due diligence can be a missed opportunity if investors don’t ask the right questions. We heard from a SPRING venture on what investors should have asked them.
According to the CEO of EarthEnable, there are three questions they wished investors had asked during the due diligence phase:
Her rationale: “We often get siloed into other funding buckets such as “housing” and “environment”. Our focus on girls rarely comes up independently, and I feel awkward sharing it myself without being asked.”
Her rationale: “Most of our sales agents are young women, and we have been very thoughtful about safeguarding this aspect of our business and business model, though investors have almost never asked.”
Her rationale: “We brand our flooring [products] differently depending on our audience – a man versus a woman versus a girl buys our products based on different reasons, and so we approach them differently.”
- TOOLS
Tools in this section are designed to help investors move through the due diligence process. The initial screening tool can help investors narrow down on a smaller number of ventures, while the evaluation matrix enables investors to conduct a slightly more detailed evaluation.
Screening ventures
Adapted from Toniic’s guide to due diligence
Evaluation matrix and summary
This tool helps investors screen ventures with the appropriate investment fit.
Evaluation matrix of girls and young women impact ventures
- Problem validation: problem size, timing and opportunity
- Solution validation: product-market fit, competitive edge, understanding of customers
- Business model validation: viability and scalability of business model
- Impact potential: credible impact thesis / strong impact evidence, focus on girls and young women (refer to the Defining Impact section)
- Strategic fit: venture’s fit with investment thesis
- Team: team’s track record, vision, diversity and ability to execute
After the initial evaluation, investors should be able to have a clear grasp of:
- Financials and business plan and, potentially, impact thesis
- Preliminary due diligence, including market size, revenues and costs, and impact ‘sanity check’
- Ranking and review of companies
- Decision to move to detailed due diligence
- CHECKLIST
Good diligence 101
We now turn to top-level questions on potential investments, which SPRING considers best practice. There are three layers to every question:
- The question itself (what investors ask)
- What investors might listen for, based on cues coming from answers
- What investors fundamentally want to learn or consider
This list includes questions specific to girls and young women impact ventures as well as essential questions to any investment with gender considerations. It is by no means exhaustive and while most investors already have set processes and questions in place, this following list is more tailored to due diligence on girl and women focused investments.
Investors can also prioritise due diligence questions based on these two dimensions:
- Usefulness: a question should prompt the most useful information for making a good investment decision
- Effort: an investor should consider how much time and effort the entrepreneur would need to spend to answer the question fully
Before moving on, read more about how SPRING ventures have made use of human centred design, a key consideration in due diligence. The Case Foundation’s framework may be helpful for investors thinking through the impact focus.