Anyone who has seen Shark Tank or Dragon’s Den or any other program in which millionaire investors put startups through their paces, is familiar with the concept of due diligence. The idea is that one in their right mind would ever put down money for something or a service about which they have no knowledge. The need for diligence when fundraising is essential.
Due diligence in fundraising is a process which involves gathering data https://eurodataroom.com/the-flexibility-that-will-be-functional-with-a-virtual-data-room/ and documents. It is essential that the founders provide documentation to support claims made during the pitch. They must also show operational details and disclose any possible investment risks. Knowing what is required of you in terms of information gathering will help you speed up the fundraising and ensure that all documents are available.
The scope of fundraising due diligence is well-defined, but the specifics can differ based on the stage of growth of a company as well as the size of an investment round. At the angel and seed stages the obligations on both sides of the table are relatively small but as a business approaches series A, due diligence becomes more thorough.
A good practice would be to develop a risk matrix and system that identifies the types of prospects who require further investigation. Non-profits, for example, should review their policies on accepting gifts to determine how they screen out donors who have criminal records or are involved in scandals. Additionally, they could set up donor tracking tools that automatically flag any media mentions of their largest donors in the event of newsworthy incidents.