Fundraising Due Diligence

Anyone who has seen Shark Tank, Dragon’s Den or any other show where millionaire investors put startups through their paces is familiar with the concept of due diligence. The principle is that no rational person would invest in products or services they don’t understand. This is why fundraising due diligence is so important.

Due diligence for fundraising involves an analysis of collecting data and documents. It is important that founders submit documents to support claims made during the pitch. They must also show the operational details and reveal any potential risks to investing. Being aware of what is expected of information gathering fundraising due diligence can help accelerate the process of fundraising and ensure that all required documents are in place.

The scope of fundraising due diligence is well-defined, however the specifics may differ based on the stage of growth of a company as well as the size of an investment round. At the seed and angel stages the obligations on both sides of the table are small however, as a company is moving towards series A due diligence becomes more thorough.

A good idea is to develop a risk assessment rubric and create a system for identifying the types of prospects that warrant additional investigation. Non-profits, for instance should examine their policies on accepting gifts to determine how they check out donors with criminal records or have been involved in scandals. In addition, they can create donor tracking tools which automatically flag mentions of their biggest donors in the case of newsworthy events.