You can see on Shark Tank and other business shows how a well-crafted pitch can be destroyed if the past of a potential client is exposed. They might reveal an pending lawsuit, a hidden debt or some other issue that stops them from donating their money. This is known as due diligence or DD, and it’s the thing that fundraising teams need to do to ensure that their prospective customers and donors protected from financial, legal, reputational and compliance risks.
The amount and depth of documentation requirements of a fundraising due diligence process differs based on the stage of your business’s startup and industry. But, in general it’s an essential stage of your company’s development particularly if you’re seeking investment from venture capital funds.
Investors want to be aware of the risks that could hinder your company from reaching its maximum potential. Investors will want to be aware of the specific risks that could hinder your business from achieving its full potential.
Educational institutions and non-profit organizations also conduct due diligence on potential donors to ensure that their purpose and values coincide with the charitable donations they’re hoping to receive. They’ll also examine how a gift will affect the organization’s leadership and operations, and in some cases, whether a particular project is at risk of being overtaken by an undue influence from a supporter.
Creating a consistent, clear risk rubric that directs 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 restart after an unexpected setback, or delay. Additionally, having a data room “DD ready” will help you reduce your legal fees and ensure that you can provide prospective clients with all the information they require to make a decision.