Warren Buffett has a proven investment strategy. He invests within his circle of competence, which narrows the field of possible investments and eliminates most mistakes. However, he aims to broaden that circle and retreat if the strategy does not work. The introduction of a checklist to the Buffett investment process was not without risks. Warren Buffett assumed that a checklist would slow down his investment team, but he was willing to pay the price as it reduced the number of errors that could have affected his portfolio.
The most important factor in evaluating a potential investment is the management team. The investor will look for references to determine if the management team can justify a financial backing. If there are gaps in the management team, the investor may earmark investment funding to bring in key hires. A company’s other stakeholders should be thoroughly vetted to ensure they are worthy of the investment. If they are not, the investment might not be a good fit for the investor’s portfolio.
Investors will also conduct background checks on key employees and review organizational paperwork. The VDR should contain all the necessary legal documents and protections for intellectual property. They will also review the company’s finances and profitability, as well as the business plan. The investor will also look at the company’s contract with its vendors. Finally, investors will look at its technology. The investor may even call its clients to check if the product they are buying is good.