What are the due diligence requirements for companies that want to close an investment?
After the initial conversation with an investor and reviewing your pitch deck, you may receive requests for follow up due diligence. This is a sign the investor is interested and digging deeper into your business to understand what makes it worth their money, where you are in your development, and where they can add value.
It is best practice to have a data room folder in GoogleDrive or Drop Box with these documents ready to go and for investors to review. Below is an abbreviated list of the most common documents requested while investors assess your company for investment.
The point of requesting and reviewing these documents is to have a full understanding of your business in considering the investment. At venture capital funds, findings and assessment of the investment professional that leads the due diligence is compiled into an investment committee memorandum or deck.
Investors are trying to understand the risks and go into the decision of investing in your company with all information at hand. The secondary point is to understand if the founder accurately represented the business. If during due diligence it is found that the founder was not accurate, that is usually grounds for calling off the investment.
At the end of the day when your investor crosses the line, they are on your team and they will usually be committed on the long term. Play their game, do your own due diligence as a founder, and pick an investor that you want on your team.
Marco Torregrossa is a private investments advisor for Innovation Manager Finland Ltd. Follow him at @MarcoTorreg