Anyone who has seen Shark Tank or Dragon’s Den or any other show where millionaire investors put startups through their paces, is familiar with the concept of due diligence. The idea is that one in their right mind would plunk down money for the purchase of a product or service which they know nothing. A thorough approach to fundraising is important.

Due diligence in fundraising is a procedure that involves gathering information and documents. It requires founders to provide corroborative documents to support claims made during the pitch, and also to demonstrate the operational nitty-gritty and expose any investment risks that could be a concern. Knowing what’s expected from information gathering can help accelerate the process of fundraising and ensure that all the necessary documents are in the hands of the investors.

The scope of due diligence for fundraising is well-defined, however the details can vary depending on the stage of growth of a business and the size of an investment round. At the seed and angel stages, obligations on both sides of the table are relatively small However, as a business is moving towards series A, due diligence becomes more stringent.

A good idea is to develop a risk matrix and system that can identify the kinds of prospects who require further research. For instance, nonprofits must review their policies on accepting gifts and develop a method of screening out donors with known criminal records or scandals. Additionally, they can establish donor tracking systems that automatically flag any media mentions of their major donors in the event of media-worthy incidents.



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