Anyone who has seen Shark Tank, Dragon’s Den or any other show in which millionaire investors put startup entrepreneurs through their paces will be familiar with the concept of due diligence. The principle is that no rational person would pay for a product or service they don’t fully understand. That’s why due diligence when fundraising is so crucial.
Due diligence in fundraising is a procedure that involves gathering data and documents. It requires the founders to provide corroborative documents www.eurodataroom.com/fundraising-due-diligence-checklist/ to support claims made during the pitch, show operational nitty gritty and reveal any possible investment risks. A clear understanding of what’s expected from gathering information can speed up the fundraising process and ensure that all the necessary documents are in the hands of the investors.
While the extent of fundraising due diligence is well-defined however the specifics of due diligence depend on the company’s stage of development and the size of the round. Due diligence obligations are small at the initial stage and at the angel stage but they grow more strict as a business moves towards series A.
A good idea is to create a risk matrix and a system that can identify the kinds of prospects who require further research. Non-profits, for example should look over their gift acceptance policies to determine how they will screen out donors who have criminal convictions or scandals. They can also install donor tracking software that flags any media mentions of their largest donors, should there be any notable events.