The due diligence consists of three main parts:
Each investor may have a specific process, but typically it involves reviewing the management team, the market potential, the product or service (and the need it meets) and the business model.
An investor’s management review in due diligence
The management team is the most important aspect of the evaluation and the opportunity. The investor is continually evaluating during all of the formal and informal interactions to make sure that you have what it takes to make the venture a success. The investor will request a list of references to contact and learn more about your background and confirm that your team deserves to be backed financially. They will also develop an understanding of some of the gaps in the management team. The investor may earmark investment funding to add key hires to fill these gaps. The investor will also assess the quality of others around your company, including advisors, consultants, other investors, directors, and legal and accounting firms.
INVESTORS MAY ASK:
Most venture capital (VC) deals are investments in opportunities that address a pain point in a large high growth market. The investor will dig into the size, growth rate and competition in the marketplace. Make sure that you understand your competition and can clearly articulate how your product or service is differentiated from the competition.
INVESTORS MAY ASK:
Due diligence and product/service review
Key questions will include “What is the customer problem being solved?” and “Can the problem be solved profitably?” The evaluation will likely include a consultation with current or potential customers and partners.
INVESTOR’ QUESTIONS MAY INCLUDE:
Business model review
The investor will closely examine how the company will make money and how it will operate over time.
SPECIFIC QUESTIONS MAY INCLUDE:
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