Due diligence is a key part of the fundraising process however it can take away valuable time that founders should be focusing on their business. In addition, it’s often difficult to manage the influx of requests for information from investors, which can lead to delays in closing the funding rounds.
The depth of due diligence in fundraising differs depending on the stage of a startup as well as the type of investor. Seed-stage startups must be prepared to present information to equity investors like venture capital firms and Angel Investors, while later-stage startups may need to satisfy institutional investor due diligence.
Using tools to automate these searches can help reduce the workload on staff and cut down the amount of time required to conduct due diligence on fundraising. For instance screening and prospecting for donors tools automatically search the internet for information about donors and their businesses or associations. This will save time and effort when compared to manual research and ensure that all risks are taken care of.
Fundraising due diligence includes not only searching for information on a potential investor but also setting up policies on the kinds of donations an institution can accept or deny. These policies could contain guidelines that restrict an individual donor from having influence on the institution’s staff or trustees or programs.