Anyone who has watched Shark Tank, Dragon’s Den or any other show on which millionaire investors put startup entrepreneurs through their paces is aware of the concept of due diligence. The idea is that no person in their right mind would lay down money for an item or service about which they have no knowledge. The need for diligence when fundraising is vital.
Due diligence in fundraising is a process that involves gathering data and documents. It requires that founders provide supporting documents to back up claims made during the pitch, show the operational nitty-gritty of the process and disclose any investment risks that could be a concern. A clear understanding of what’s expected in terms of information gathering can help speed up the fundraising process and ensure that all necessary documents are in place.
While the extent https://eurodataroom.com/ of fundraising due diligence is fairly well defined, the exact details vary according to a company’s stage of growth and the size of the round. At the angel and seed stages, obligations on both sides of the table are relatively small however, as a company gets closer to series A due diligence becomes more rigorous.
A good practice is to develop a risk-based rubric and develop a method for identifying the kinds of potential donors that require further investigation. Non-profits, for example should examine their policies regarding gift acceptance to determine how they identify donors with criminal convictions or scandals. They can also establish donor tracking software that flags any media mentions of their biggest donors, if there are any newsworthy incidents.