How do I prepare for investor due diligence?
Short answer
I prepare for investor due diligence before an investor asks for it by organizing the documents, answers, and supporting information they are likely to request. Sophisticated investors want to evaluate your business, your team, your track record, and your ability to execute. If you cannot answer questions promptly or provide organized information, you may lose credibility before the investor finishes evaluating the opportunity. I encourage capital raisers to prepare for investors who are more sophisticated than the ones they currently work with.
Checklist
- Create an organized, secure investor data room.
- Prepare a master due diligence questionnaire.
- Document clear answers to frequently asked investor questions.
- Organize relevant financial and performance information.
- Have appropriate background and reference checks available.
- Make your investment strategy and operating structure understandable.
- Respond promptly and precisely to investor questions.
- Remain professional when investors challenge your assumptions.
From my talks
"Really need to be responsive, precise, actually listen to the questions and address all of the questions that are being asked."
I described working with a group of former FBI professionals who were raising capital for a private equity fund. Their main selling point was their thorough investigative background and due diligence capabilities. I challenged them to apply that same level of investigation to themselves and make the results available to prospective investors. The lesson is simple: if thorough due diligence is part of your competitive advantage, demonstrate that standard in your own organization.
Sources Preparing for Surviving Due Diligence, Episode 14; 2 Critical Core Due Diligence Tools, Episode 4 of the Due Diligence Series
What to do next
- Build a secure data room containing the information investors regularly request.
- Create a master questionnaire and document answers to the most common questions.
- Have someone unfamiliar with your business review the materials and identify gaps before an investor does.
Related questions
- How much money should I raise?
- How do I raise capital for my business?
- How do I find investors for a startup?
Try the Due diligence data room checklist. See all compliance basics questions.
