Fundraising Due Diligence
by baraknew
When you watch Shark Tank or other business shows, you’ll see how a slick pitch and a confident presentation can quickly be shattered when a prospective client’s past comes to light. They may disclose an pending lawsuit, a hidden credit card debt, or other issues that hinder them from giving you money. This is due diligence–or DD–and it’s what fundraising teams have to perform to keep their prospective clients and donors protected from legal, financial and reputational risks as well as compliance.
The depth and documentation requirements of a due diligence process differs based on the stage of your company’s growth and industry. It is important to understand that this is an important stage in the development of your business, particularly in the event that you’re looking to raise capital from venture capitalists.
Investors will want to understand the significant risks that could hinder your business from reaching its full potential. Investors want to know the material risks that could hinder your business from realizing its full potential.
Nonprofits and educational establishments also conduct due diligence on potential donors to ensure that their mission and values align with the philanthropic donations they are seeking to make. They’ll also look at the impact of a donation on the organization and its leadership in some cases, whether a particular project is at risk of being taken over by an unjust influence from the donor.
Making a uniform, clear risk rubric that determines the due diligence process for prospects will help streamline your efforts and speed up the timeframe for fundraising. This will help your organization avoid having to restart after an unexpected setback or delay. Maintaining a dataroom “DD ready” can reduce your legal expenses and ensure that you are able to provide prospects with the information they require to make a choice.