Steps to Growth Capital Self-Study GuideStep 7

7.7 Understand the Due Diligence Review

The Meeting as the First Step in Due Diligence

You can think of the meeting, and the investor's questions and requests for information, as high level due diligence.

Before investing cash into your business, your investor will want to investigate the details of your investment opportunity. This investigation is called a due diligence review. The review is like a reference check for a job applicant. It's a way for the investor to get outside, objective information on you, your business, and your proposal.

The due diligence review starts at the initial meeting, and, if a deal emerges, it continues until the deal is closed. A complete due diligence review is typically conducted when an agreement has been reached between the investor and the entrepreneur. But even the initial meeting is the beginning of the investor's review process.

Intense Questioning Is a Good Sign

The due diligence review is a normal and integral part of an investment transaction. If you are faced with questions and requests from potential investors, remember these two points:

• Maintain your composure. Try to understand comments from your investor's point of view, and do your utmost to respond with candour and honesty.
• Recognize that an intense due diligence review is usually a sign that the investor sees your business as an interesting concept to invest in.

The entire process can take several weeks to complete. If you've worked your way through the earlier Steps in this guide, then you've already addressed the main issues of the due diligence review in your investment proposal.

You can read a short discussion of the elements of the due diligence review, or a more detailed review of the topic in Step 9, Closing the Deal.

<< Previous | Next >>