Tips and Tricks for Effective Due Diligence
April 5, 2018
Author: Curtis Cleaver
Find a Business Person Who Knows the Space
When performing due diligence on a business, especially an early stage one, it is imperative you have someone who is at least somewhat familiar with the space. Understanding the risks, the position of the company, the business plan and the next steps for the business, are all best tackled by someone with experience in that field. Without being an expert in the area, even the most business savvy investor would end up with more questions than answers.
Run it by the Professionals
Having an accountant and lawyer who can review the projections and legal documents can help identify any fatal flaws at an early stage. While it may not make sense to have them perform a deep dive (and pay the associated fees) at the outset of the due diligence, a brief review can often uncover issues that would cause an investor to back away from the deal. Before going too far down the road, it makes sense to see if the financial projections are realistic and if the business actually owns and properly protected their intellectual property.
Talk to Other Investors
A good network of like-minded investors can be invaluable when reviewing a possible investment opportunity. Whether your network will be reviewing the specific details with you (make sure to not breach any confidentiality agreements with the potential target company), or just discussing the opportunity generally, there’s a good likelihood that someone has seen a similar investment in the past. Understanding why that investment failed, or how it succeeded, may give you invaluable input into the opportunity at hand and will better inform the rest of the due diligence process.