Effective Due Diligence Thursday, 9 May 2013 Panelists: Chris Cusano (Moderator), Executive Director, Ashoka Southeast Asia

Audrey Selian, Director, Artha Initiative, Rianta Philanthropy Maurice Machenbaum, Executive Director, WISE Simon Desjardins, Programme Manager Access to Energy, Shell Foundation Shruti Sehra, Partner, New Profit Summary: This panel covered the topic of the due diligence that funding organizations conduct on nonprofits and social enterprises as they set about finding and evaluating funding opportunities. The panelists were asked to describe due diligence in one word at the end of the session. Their responses: enriching, compulsory, value-add, efficiency and uplifting. Panelists agreed that there are many models for due diligence. How an organization will conduct diligence depends on the type of organization (foundation, individual donor, venture philanthropy) and what goals it trying to achieve (financial return, social return, others). Some things to think about as an organization determine its due diligence policies: How an organisation is funded, and what the funders goals are The stage of the business that youre investing in will determine just how much diligence one can do and how best to conduct it The way that an organization will work with the entrepreneur high touch vs. low touch. If the organisations relationship going forward is going to be very high touch, then the diligence process will also be a process of fostering a personal relationship with the entrepreneur One of the problems in the industry is the lack of sufficient financial data for analysis in diligence. When investing in small organizations and entrepreneurs who are just starting out, there is little or no financial data to analyze during due diligence. Therefore, diligence is inherently qualitative rather than quantitative. It must therefore be done on a personal level. Evaluating the team that is presenting the idea to an organisation and its chances of success becomes one of the most important parts of diligence. The panelists also discussed a few areas that can be improved in diligence, and some of the suggestions included: Sharing data Can we foresee a world in which grant makers and investors share due diligence? Panelists discussed the Artha Initiative, trying to solve the problem that there are multiple organizations doing the same diligence work. Can the industry somehow share information to increase efficiency and reduce costs?

Staged diligence Due diligence takes a really long time. For entrepreneurs, this process can be a dance and can be extremely time consuming. Organisations can consider having a two-step process, a pipeline, or any other method that delays the lengthy diligence process until chances are higher that the entrepreneur will get funded Peer selection model Consider asking entrepreneurs to evaluate one another on the topics of team risk and customer risk. Entrepreneurs may be the best people to evaluate other entrepreneurs