You can see in Shark Tank and other business shows how a shrewd pitch can be ruined when the past of a potential client is revealed. They may disclose the pending litigation, a hidden debt or some other issue that prevents them from donating their money. Due diligence, also known as DD is the process that teams of fundraisers do to safeguard their prospects and donors from legal, financial, and reputational risk.
The documentation and depth of due diligence required for a fundraising procedure will differ based on the stage of your startup. However, generally speaking it’s an essential stage of your company’s development, especially if you’re seeking the investment of venture capital funds.
Investors are interested in knowing about the material risks which could hinder your company from achieving its maximum potential. This includes an exhaustive examination of the company’s strategic plan, its resources and your ability to meet your financial goals.
Educational institutions and non-profit organizations also conduct DD on potential donors to ensure that their mission and values are in line with the charitable contributions they’re trying to make. They will also consider the impact of a Virtual Data Room gift on the organization and its leadership and whether a certain project is in danger of being dominated by a donor.
The creation of a clear, consistent risk rubric that will guide the due diligence process when dealing with prospects will help streamline your efforts and accelerate the timeframes for fundraising. This will prevent your organization from having to start in the event of a setback that is unexpected. In addition, keeping your data room “DD ready” will lower the legal costs associated with it and ensure that you give prospective customers all the information they need to make a decision.