It is evident in Shark Tank and other business shows how a well-crafted pitch can be destroyed when the past of a prospect is revealed. They might reveal the pending litigation, a hidden debt, or another issue that prevents them from donating their money. Due diligence, or DD is what fundraising teams do to protect their prospects and donors from legal, financial and reputational risks.
The documentation and depth of due diligence required for a fundraising procedure varies depending on the stage of your startup. However, generally speaking it’s a crucial phase of your business’s growth, especially if you’re seeking investment from venture capital funds.
Investors are interested in knowing about the significant risks that could hinder your company from reaching its full potential. This includes a thorough analysis of your company’s strategy plan, current resources and your capability to meet your funding goals.
Educational institutions and non-profit organizations also conduct due diligence on prospective donors to ensure they’re mission and values align with the philanthropic donations they’re hoping to receive. They’ll also consider how a donation will impact the leadership of the organization as well as in some cases the possibility that a certain project is at risk of being overtaken by an unjust influence from the donor.
A clear and consistent risk-based rubric to guide the due diligence process of prospective donors will help you reduce DD efforts and accelerate the timeframe for fundraising. This will help your business avoid having to start again after an unexpected setback, or delay. Making sure your dataroom is “DD ready” will help you cut down on legal expenses and ensure that you are able to provide prospective customers with the information they require to make a choice.