Due diligence is an essential element of the fundraising process but it can also hinder the time founders could be spending on their business. It virtual data room can be difficult to keep up with the constantly increasing number of requests from investors for information, which could cause delays in closing funding rounds.
The level of due diligence for fundraising varies depending on the stage of a company’s development and the kind of investor. A seed-stage company must be ready to present its information to equity investors, such as venture capital firms and Angel Investors as later-stage startups may require to satisfy institutional investors due diligence.
Tools that automate these searches reduce the workload on staff and the time needed to perform due diligence in fundraising. For example, donor prospecting and screening tools can automatically scan the web for data about donors, their businesses or associations. This can cut down time and effort compared to manual research and ensure that all possible risks are taken care of.
In addition to performing searches to find information about a potential investor and evaluating the risk of a potential investor, due diligence for fundraising includes establishing policies for the types of donations that an institution will or cannot accept. These can include policies preventing from accepting donations of funds or property acquired by means other than legal; guidelines that would prevent any donor from exercising influence over the institution’s trustees, staff or programs; and regulations regarding naming policies.
