Due diligence in fundraising is a technique which permits investors, such as venture capital firms or angel funds to conduct research on your business. They also can verify your business plan as well as assess your market potential. It is an important part of the fundraising process and is mandatory for any startup seeking angel or venture capital funding. However it can be a long tedious, time-consuming, and stressful process for founders.
Investors must go through a lot of information and documents during due diligence, ranging from financial statements, projections, and even legal documents. It’s essential for a start-up to be organized and prepared to speed up the process. If you can quickly deliver the correct information at the right moment, you will save your team time and money. You can then concentrate on the most important aspects of fundraising.
Due diligence encompasses not only the financials, but also day-to-day activities of a business. Investors will be more confident in your business by having precise sales forecasts, and an operating strategy that is current. In addition, a strong operating record with no interruptions can provide investors with confidence.
Some prospects require additional due diligence due to their size or the sensitivity. This can include international donors, prospect with a questionable background, high profile virtual data room or controversial background or solicitations that could put your company in the public spotlight (such as the naming of gifts). In order to efficiently manage the risks, it is essential that all departments responsible for fundraising and stewardship are involved. This ensures that the relevant data is gathered, analysed and then presented to your team to make a decision.