Fundraising Due Diligence

When you watch Shark Tank or other business shows, you see how a professional pitch and a confident presentation can abruptly be destroyed when a prospective client’s past is revealed. They may reveal a pending suit, a hidden credit card debt, or other issues that stop the prospect from giving you money. Due diligence, also known as DD is the process that fundraising teams do to protect their prospects and donors from legal, financial and reputational risk.

The documentation and the depth of due diligence required for fundraising is contingent on the stage of your startup. It is important to understand that this is a crucial stage in the development of your business, particularly when you’re seeking investment from venture funds.

Investors will want to understand the material risks that could hinder your company from achieving its full potential. This will include a thorough analysis of the company’s overall strategic plan, existing resources and your ability to achieve your goals for funding.

Educational establishments and non-profit organizations also conduct due diligence on prospective donors to make sure they’re mission and values coincide with the charitable donations they’re seeking to make. They’ll also look at how a gift will affect the organization’s leadership and operations, and in some cases, whether a particular project is at risk of being overtaken by an improper influence from a supporter.

Creating a uniform, clear risk rubric that guides the due diligence process with prospects will help streamline your efforts and speed up the timeline for fundraising. This will help your organization avoid having to re-start after an unexpected setback, or delay. Having a dataroom that is “DD ready” can help reduce your legal costs and ensure you can provide potential clients with the information they require to make a choice.

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