Anyone who has seen Shark Tank, Dragon’s Den or any other show on which millionaire investors put entrepreneurs through their paces is familiar with the concept of due diligence. The idea behind it is that no person in their right mind would ever put down money for the purchase of a product or service which they know nothing. That’s why due diligence when fundraising is so important.
Fundraising due diligence involves the process of gathering data and document-gathering. It requires founders to provide supporting documents to support the claims made in the pitch, demonstrate the operational nitty-gritty of the process and disclose any potential risks to investment. Knowing what is expected of you in terms information gathering will help accelerate your fundraising and ensure that all the documents are accessible.
The scope of fundraising due-diligence is well-defined, but the details can vary depending on the growth stage of a company and the click here to investigate size of an investment round. Due diligence obligations aren’t as strict at the stage of seed and angel but they grow more strict as a business advances towards series A.
A good idea is to develop a risk-based rubric and then create a method of identifying the types of people who require additional research. Non-profits, for example should examine their policies on gift acceptance to determine how they screen out donors who have criminal records or are involved in scandals. They can also establish donor tracking software to flag any mentions in the media of their biggest donors, in the event of newsworthy events.