When you watch Shark Tank or other business shows, you’ll notice how a slick pitch and a confident appearance could suddenly be ruined when a prospect’s background is revealed. They may disclose the pending suit, a hidden credit card debt or other issues that stop the prospect from giving you money. This is due diligence–or DD–and it’s what fundraising professionals must do to keep their prospects and donors safe from legal, financial and reputational risks as well as compliance.
The details and documentation requirements of a fundraising due diligence process can vary based on the stage of your company’s growth and industry. It is important to understand that this is a crucial phase in the growth of your company, especially if you are seeking investment from venture capitalists.
Investors want to know the most significant risks that could prevent your company from achieving its full potential. This includes a thorough examination of the company’s strategic plan, its resources and your capacity to achieve your goals for funding.
Educational institutions and nonprofits also conduct DD on potential donors to ensure that their goals and values are in line with the philanthropic contributions they’re hoping to make. They’ll also look at the impact of a donation on the organization’s leadership and operations, and, in some cases the possibility that a certain project is at risk of being overtaken by an influence of a supporter.
Making a clear, consistent risk rubric that directs the due diligence process for prospects will help streamline your efforts and accelerate the timeframes for fundraising. This will help your organization avoid having to start again after an unexpected setback, or delay. Maintaining a dataroom « DD ready » can cut down your legal costs and ensure you are able to provide prospective customers with the information they need to make a choice.