The EIR Corner

Your hard work is finally paying off. The investors have told you that they find your business proposition to be compelling and that they would like to conduct a “due diligence” evaluation on your company. What should you expect from this process?

The purpose of a due diligence audit is to validate provided information and assess the desirability, value and potential of an investment opportunity in your company. Investors will examine corporate documentation (financials, legal documents, patents, etc.), conduct personal and business reference checks and review technical evaluations from industry experts. Ultimately, the purpose of this information is to clarify:

• Your track record and that of your management team
• The validity of your overall assumptions
• The size and growth potential of your market
• Demand for your product or service among targeted customers
• Your ability to deliver the product on time and at a reasonable price
• Competitive landscape and your competitive advantage
• Marketing and distribution plans
• The soundness of your financial projections
• Your hiring plans
• Intellectual property rights or patents
• Existing or possible legal contingences
• The possibility of any potential risks
• Company intangibles (passion, focus and momentum)

In addition to providing insight into your business, the due diligence process will also reveal a great deal about you. This is a perfect opportunity for you to demonstrate your desire to build a solid foundation of mutual trust and partnership with your investor. Your ability to be honest, reasonable, organized and responsive will go a long way to demonstrate your professionalism and commitment.

Lastly, don’t be afraid to conduct your own due diligence. Speak with other CEO’s of portfolio companies and ask them how easy the investor is to work with, what kind of support they provided and how did they react when things did not go as planned? Get to know the partners, the culture and their track record. You may need the capital, but you certainly don’t want to be stuck in a bad marriage.

With preparation and the right attitude, the due diligence process will be smoother and faster than you thought possible.