How Do You Diligence a Company That Doesn’t Exist?
Due diligence is often thought of as a structured, data-driven process: analyze financials, evaluate market fit, assess competition, and stress-test the business model. But what happens when the company in question doesn’t even exist yet?
As Head of Diligence at Encore Venture Labs (EVL) face this challenge daily. Unlike traditional diligence, where we evaluate companies with years (or even decades) of operating history, we must validate businesses that are still in the ideation phase. That means shifting the conversation from data analysis to data requisition—determining what data matters and how to acquire it.
Defining Success: The EVL Framework
At EVL, we’ve built a diligence process designed for both net-new venture creation and established businesses seeking to scale. Through collaboration with our world-class Entrepreneurs-in-Residence (EIRs) and operations leads Mike and Max, we’ve distilled success down to three core factors for new ventures:
Scale & Rapid Validation – Can this company generate paying customers quickly?
Founder-Fit: A Culture of Execution – Is the founder collaborative, adaptable, and execution-focused?
The Great Lakes Advantage – Does this company leverage the unique strengths of the surrounding region?
1. Scale & Rapid Validation: The Ultimate Test
Traction isn’t theoretical. It’s not a letter of intent or a handshake agreement—it’s revenue. Our diligence process for validation is simple: Show us a purchase order.
For early-stage concepts, this might mean proving demand in a scrappy, unscalable way.
Aurelia: A new recruitment platform proving its value by signing its first client through a traditional services model before layering in technology.
ImportAnything: Automating logistics workflows for one paying customer before expanding.
INTRACT: Closing a deal with a single gaming studio before scaling.
For operating companies, it’s about expanding into new verticals or capturing more of the value chain—a move that can significantly impact long-term enterprise value.
Regardless of stage, this is the hardest test. But it’s also the single most important indicator of success.
2. Founder-Fit: The Culture of Execution
Startups are built by people, not pitch decks. At EVL, we evaluate “Founder-Fit” by assessing whether an entrepreneur can thrive in a highly collaborative, high-intensity environment.
We’re not just a collection of siloed startups—we’re a lab in the truest sense. Our EIRs cross-pollinate ideas, challenge each other, and even swap roles for deep learning. David Boone (SaaS logistics) and Adam Barber (aviation hardware) recently spent a week in each other’s worlds—David helping architect software for an aerospace product, Adam outlining logistics pain points.
This wasn’t mandated. It happened because our culture fosters execution-focused collaboration. Looking for this attitude through interviews and practicums is a core step of diligence.
3. The Great Lakes Advantage: Winning Locally
Every company we back is based in The Great Lakes—not by default, but by design. The Great Lakes region has distinct strengths that make it a strategic advantage:
Advanced Manufacturing – Leveraging deep regional expertise in precision machining and industrial production.
Water & Sustainability – Partnering with the Cleveland Water Alliance to drive innovation in fresh water technology.
Advanced Energy – Working alongside CWRU’s Think Energy Fellows to support next-gen energy solutions.
Healthcare Technology – Tapping into our partnership with our world-class academic institutions and EVL’s own Abbas Mandviwala for groundbreaking health innovations.
When assessing a company’s long-term potential, we ask: How does the region's demographic and geographic profile give you a competitive edge? If an entrepreneur can’t answer that, they may not be the right fit for EVL.
The Future of Diligence
Due diligence isn’t just about data—it’s about identifying the right data to prove viability. Whether we’re assessing a pre-revenue startup or a 100-year-old enterprise, our process remains the same:
Validate traction with real customer commitments.
Back founders who thrive in a team-driven environment.
Leverage the unique strengths of the region to win.
At Encore Venture Labs, we’re not just picking winners—we’re building them.
How do you approach diligence for early-stage companies? Let’s connect—whether you’re a founder, investor, or operator, we’d love to exchange insights.
