Anyone who has seen Shark Tank or Dragon’s Den, or any other show where millionaire investors put startups through their paces are familiar with the idea of due diligence. The idea is that no sane person would spend money on something they don’t know about. The need for diligence when fundraising is crucial.
Due over here diligence in fundraising is a procedure that requires gathering data and documents. It requires founders to provide supporting documents to justify the claims made during the pitch, demonstrate the operation’s nitty gritty, and reveal any potential investment risks. Having a clear idea of what is expected of information gathering can help accelerate the process of fundraising and ensure that all necessary documents are in the hands of the investors.
The scope of fundraising due-diligence is well-defined, but the specifics may 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 small, but as a company approaches series A, due diligence becomes more stringent.
A good way to go about this is to develop the risk matrix and system that determines the types of potential donors who require further research. Non-profits, for instance, should review their policies on accepting gifts to determine how they identify donors with criminal records or scandals. Additionally, they can establish donor tracking systems that automatically flag any media mentions of their largest donors in the case of newsworthy incidents.