Due Diligence Framework¶

Professional-Grade Venture Research¶

🔬 Institutional-Quality Analysis

This comprehensive framework elevates your research beyond basic checks to professional-grade due diligence. Master these methods to make informed decisions, minimize risks, and maximize your success rate as an Echo.

The Complete DD Process¶

Overview of Deep Diligence¶

📋 Full DD Checklist

Phase 1: Initial Screening (30 min)

Venture overview
Team backgrounds
Market opportunity
Red flag check
Go/No-go decision

Phase 2: Deep Analysis (2-4 hours)

Technical evaluation
Market research
Competitive analysis
Financial modeling
Risk assessment

Phase 3: Final Validation (1-2 hours)

Reference checks
Community sentiment
Stress testing
Position sizing
Entry timing

Phase 1: Initial Screening¶

Quick Qualification¶

⚡ 30-Minute Screen

The 10-Point Quick Check:

1. ✓ Real team with LinkedIn/GitHub

2. ✓ Clear problem statement

3. ✓ Working demo/prototype

4. ✓ Reasonable timeline

5. ✓ Specific milestones

6. ✓ Market exists

7. ✓ No plagiarism

8. ✓ Active communication

9. ✓ Positive sentiment

10. ✓ Technical feasibility

Score 8+ to proceed to Phase 2

Red Flag Scanner¶

🚩 Instant Disqualifiers

Hard Pass Triggers:

Anonymous team
No technical proof
Copied whitepaper
Impossible claims
Toxic behavior
Previous scams
Regulatory issues
Token-first focus

**If ANY present → STOP**

Phase 2: Deep Analysis¶

Technical Due Diligence¶

💻 Technical Deep Dive

**Code Analysis:**

GitHub Repository Check:

When analyzing a venture's code repository, examine these key metrics:

Commits: Look for 100+ commits showing consistent development
Contributors: Target 3+ active developers for redundancy
Stars: Higher star counts indicate community interest
Issues: Check the ratio of open to closed issues
Last Update: Should be within 7 days for active projects
Documentation: Assess if docs are complete, partial, or missing
Test Coverage: Look for comprehensive testing practices
Security: Check if code has been audited or is pending audit

**Architecture Review:**

**System design coherent?**
Scalability addressed?
Security prioritized?
Dependencies reasonable?
Innovation level?

**Demo Testing:**

**Functionality works?**
Performance acceptable?
UX quality?
Bug frequency?
Feature completeness?

Market Research¶

📊 Market Deep Dive

** TAM Calculation:**

Calculate the Total Addressable Market using this formula:

TAM = Target Users × Revenue per User × Market Penetration

Example: For a venture targeting 1 million potential users, charging $100 per year, with an estimated 10% market penetration, the TAM would be $10 million (1M × $100 × 10%).

** Competitive Matrix:**

|-----------|-----------|------------|--------------|----------------|

** Market Timing:**

**Why now vs 2 years ago?**
Enabling technologies?
Regulatory changes?
Consumer behavior shifts?
Competitive dynamics?

Team Investigation¶

👥 Background Verification

** Founder Research Template:**

Use this comprehensive checklist to investigate each team member:

Basic Information:

Full name and role in the venture
LinkedIn profile verification
Professional background and previous companies
Track record of successes and failures
Years of relevant experience
Domain expertise in the venture's field

Crypto/Web3 Experience:

Years of on-chain activity history
Previous crypto projects and outcomes
Community reputation and references
GitHub activity and code contributions
Thought leadership (articles, talks, podcasts)

Red Flag Indicators:

Unexplained employment gaps
Pattern of failed ventures (consider context)
Any legal or regulatory issues
Negative reputation or community warnings
Conflicting or inconsistent information

** Reference Checking:**

**Contact previous colleagues**
Check advisor claims
Verify partnership claims
Validate testimonials
Cross-reference stories

Financial Analysis¶

💵 Financial Modeling

** Revenue Projection Model:**

Create financial projections using this framework:

Year 1 Projections:

User Base: Start with realistic numbers (e.g., 1,000 users)
Revenue per User: Average transaction value (e.g., $50)
Total Revenue: Multiply users by revenue per user
Operating Costs: Include all expenses
Net Burn: Calculate the funding needed

Year 2 Projections:

User Growth: Project realistic growth (e.g., 10x to 10,000 users)
Revenue Expansion: Account for pricing power or upsells
Scale Economics: Model improving unit economics
Profitability Timeline: Identify break-even month

In this example, the venture would break even around month 18, transitioning from burning $150,000 in year 1 to generating $250,000 profit in year 2.

Unit Economics:

**Customer Acquisition Cost (CAC)**
Lifetime Value (LTV)
LTV/CAC Ratio (Target: 3+)
Gross Margins
Payback Period

** Funding Analysis:**

**Current runway**
Burn rate
Next funding needs
Dilution risk
Token economics

Risk Assessment¶

⚠️ Comprehensive Risk Matrix

**Risk Scoring (1-5 scale):| Risk Category | Score | Mitigation |**

|--------------|-------|------------|

| Technical Risk | _/5 | Team expertise |

| Market Risk | _/5 | Validation data |

| Regulatory Risk | _/5 | Legal counsel |

| Competition Risk | _/5 | Differentiation |

| Execution Risk | _/5 | Track record |

| Financial Risk | _/5 | Funding plan |

| Team Risk | _/5 | Redundancy |

| Timeline Risk | _/5 | Buffer built |

**Total Risk Score: __/40**

**<15: Low risk**
15-25: Moderate risk
>25: High risk

Phase 3: Final Validation¶

Community Intelligence¶

👥 Social Validation

** Community Health Check:**

**Discord members: ___**
Daily active: ___%
Message sentiment: Positive/Mixed/Negative
Team responsiveness: ___/10
Community contributions: High/Med/Low

** Influencer Opinions:**

**Industry experts mentioning?**
Respected Echoes signaling?
Media coverage quality?
Partnership announcements?
Award recognition?

Stress Testing¶

🔨 Scenario Analysis

** Best Case Scenario:**

**Everything goes right**
2x planned growth
Returns: ___x

** Base Case Scenario:**

**Normal execution**
Meet milestones
Returns: ___x

** Worst Case Scenario:**

**Major challenges**
50% achievement
Returns: ___x

** Black Swan Events:**

**Regulatory ban**
Tech breakthrough
Market crash
Team implosion

Documentation Template¶

DD Report Format¶

📄 Professional DD Report

Professional DD Report Template:

Structure your due diligence findings using this comprehensive format:

1. Executive Summary

Clear recommendation: Belief, Doubt, or Pass
Confidence level percentage
Suggested stake size in $SIGNAL tokens
Top 3-5 key risks identified

2. Detailed Analysis Sections

Team Assessment: Background checks, experience, track record
Technical Evaluation: Code quality, architecture, innovation
Market Analysis: TAM, competition, timing, differentiation
Financial Projections: Revenue model, unit economics, runway
Risk Assessment: Technical, market, regulatory, execution risks
Competition Analysis: Competitive advantages and threats

3. Conclusion

Summary of findings
Final recommendation with rationale
Suggested position sizing and timing

4. Supporting Documentation

Links to all sources used
Screenshots of key evidence
Data tables and calculations
References and citations

Advanced DD Techniques¶

Information Gathering¶

🕵️ Research Methods

** Primary Sources:**

1. **Direct Communication**

Team interviews
User surveys
Partner discussions
Advisor calls

2. **Testing & Analysis**

Product testing
Code review
Market experiments
Competitive analysis

** Secondary Sources:**

1. **Public Data**

Industry reports
Academic papers
News articles
Social media

2. **Network Intelligence**

Expert opinions
Insider knowledge
Community insights
Competitor intel

Behavioral Analysis¶

🧠 Team Psychology

** Communication Patterns:**

**Response time to questions**
Transparency level
Defensive vs open
Update frequency
Crisis handling

** Commitment Indicators:**

**Full-time dedication**
Personal investment
Public presence
Long-term vision
Sacrifice evidence

** Red Flag Behaviors:**

**Avoiding hard questions**
Changing stories
Blaming others
Overpromising
Lack of accountability

Specialized DD¶

DeFi Protocol DD¶

🏦 DeFi-Specific Checks

** Additional Requirements:**

**Smart contract audits (2+)**
Economic model analysis
Attack vector assessment
Liquidity provisions
Governance structure
Oracle dependencies
Composability risks
Regulatory compliance

Gaming Venture DD¶

🎮 Gaming-Specific Checks

** Additional Requirements:**

**Gameplay loop analysis**
Monetization model
Player retention metrics
Art/design quality
Performance optimization
Platform strategy
Community building
Competitive landscape

DD Best Practices¶

Time Management¶

⏰ Efficient Research

** Time Allocation:**

**Initial screen: 30 min**
Deep dive: 2-4 hours
Validation: 1-2 hours
Report writing: 30 min
Total: 4-7 hours

** Efficiency Tips:**

**Use templates**
Batch similar tasks
Set timers
Focus on critical items
Know when to stop

Quality Control¶

✅ DD Quality Checklist

** Before Signaling:**

**[ ] All sections complete**
[ ] Sources documented
[ ] Assumptions stated
[ ] Risks identified
[ ] Peer reviewed
[ ] Gut check passed
[ ] Position sized
[ ] Entry timed

Common DD Mistakes¶

Pitfalls to Avoid¶

❌ DD Failures

** Analysis Errors:**

**Confirmation bias**
Insufficient depth
Missing red flags
Over-optimism
Herd following

** Process Errors:**

**Rushing research**
Skipping steps
No documentation
Solo analysis
Emotional decisions

Building DD Skills¶

Continuous Improvement¶

📈 Skill Development

** Learning Path:**

1. **Study Reports**

Read professional DD
Analyze methods
Note patterns
Build library

2. **Practice Regularly**

DD everything
Time yourself
Get feedback
Track accuracy

3. **Specialize Gradually**

Pick sectors
Deep expertise
Build reputation
Share knowledge

Next Steps¶

Apply Your Skills¶

Continue with:

Belief Strategies - When to go long
Doubt Strategies - When to go short
Portfolio Management - Risk management

DD Excellence

Great due diligence is like great detective work - methodical, thorough, and objective. The time invested in proper DD pays dividends in better decisions and fewer losses.

Pro Secret

The best DD often finds reasons NOT to signal. It's better to miss opportunities than to lose capital on preventable mistakes. Quality over quantity always wins.