You can see on Shark Tank and other business shows how a convincing pitch can be destroyed when the past of a potential client is disclosed. They may reveal an pending lawsuit, hidden debt, or some other issue that prevents them from donating their money. This is referred to as due diligence, or DD. it’s what fundraising teams have to perform to keep their prospective clients and donors protected from financial, legal, reputational and compliance risks.
The documentation and the depth of due diligence required for a fundraising procedure varies depending on the stage of your startup. But, in general it’s a crucial phase of your company’s development, especially if you’re seeking the investment of venture capital funds.
Investors are interested in knowing about the most significant risks that could hinder your business from reaching its maximum potential. Investors will want to be aware of the risk factors that could prevent your company from realizing its full potential.
Nonprofits and educational establishments also conduct due diligence on prospective donors to ensure they’re mission and values coincide with the charitable donations they’re hoping to receive. They will also consider the impact of a donation on the organization and its leadership, as well as whether a certain project is at risk of being overtaken by a supporter.
Developing a clear and consistent risk rubric to guide the due diligence process for potential donors will help you streamline DD efforts and accelerate the timeframe for fundraising. This will help your organization avoid having to restart after an unexpected setback or delay. Making sure your dataroom is “DD ready” can reduce your legal costs and ensure that you can provide potential clients with the information they need to make a choice.