Anyone who has seen Shark Tank or Dragon’s Den, or any other show in which millionaire investors put startups through their paces is familiar with the idea of due diligence. The idea is that no sensible person would ever invest money in something they don’t understand. Due diligence in fundraising is important.
Due diligence on fundraising involves the process of analyzing document-gathering and data collection. It is crucial that founders submit documents to support claims made during the pitch. They must also provide the operational details and reveal any potential risks to investing. Knowing what is expected click here to investigate of you in terms information gathering will help accelerate your fundraising process and ensure that all documentation is available.
The scope of due diligence for fundraising is well-defined, but the specifics may differ based on the growth stage of a company and the size of an investment round. At the stages of seed and angel the obligations on both sides of the table are small but as a business approaches series A, due diligence becomes more thorough.
It is a good idea to create a risk rubric and devise a method for identifying the types of people who require additional investigation. Nonprofits, for example should examine their policies regarding gift acceptance to determine how they screen out donors who have criminal convictions or scandals. They can also set up donor tracking software to flag any media mentions of their biggest donors, if there are any notable incidents.