If you watch Shark Tank or other business shows, you can see how a smooth pitch and a confident appearance could quickly be shattered when a prospective client’s history is exposed. They may reveal an pending lawsuit, hidden credit card debt, or other issues that hinder the prospect from giving you money. This is due diligence–or DD–and it’s what fundraising teams must do to ensure that their prospective customers and donors protected from legal, financial, reputational and compliance risks.
The documentation and depth of due diligence required for a fundraising procedure will differ based on the stage of your startup. It’s important to note that this is a crucial phase in the growth of your company, especially if you are seeking investment from venture funds.
Investors want to be aware of the significant risks that could prevent your business from achieving its maximum potential. This includes a thorough Virtual Data Room analysis of your company’s strategy plan, current resources and your capacity to meet your funding goals.
Educational and non-profit institutions also conduct DD on potential donors to ensure that their mission and values are aligned with the charitable contributions they’re looking to make. They will also consider the impact of a donation on the organization and its leadership and whether the project is in danger of being taken over by a donor.
The creation of a consistent, clear risk rubric that will guide the due diligence process when dealing with prospects will streamline your efforts and accelerate the timeframes for fundraising. This will allow your company to avoid having to re-start after an unexpected setback, or delay. Making sure your dataroom is “DD ready” can cut down your legal expenses and ensure that you can provide potential clients with the information they need to make a choice.