Fundraising Due Diligence

When you watch Shark Tank or other business shows, you can see how a professional pitch and a confident appearance could suddenly be ruined when a prospective client’s history is exposed. They might reveal a pending lawsuit, a hidden debt or some other issue that prevents them from donating their money. Due diligence, or DD is the process that fundraising teams do to protect their donors and prospects from legal, financial and reputational risks.

The requirements for documentation and depth of a due diligence process differs based on the stage of your company’s growth and industry. But, in general it’s a crucial stage of your business’s growth, especially if you’re seeking investment from venture capital fund.

Investors are interested in knowing about the material risks which can hinder your business from achieving its full potential. Investors want to know the material risks that could hinder your business from reaching its full potential.

Nonprofits and educational institutions also conduct DD on prospective donors to ensure that their goals and values align with the philanthropic gifts they’re looking to make. They’ll also consider how a gift will affect the organization’s leadership and operations, and in some cases it is a matter of determining if a particular cause is at risk of being taken over by an improper influence from an individual donor.

Establishing a clear and consistent risk rubric to guide the due diligence process for prospects will help you streamline DD efforts and speed up fundraising timelines. This will prevent your organization from having to start all over with a new approach after an unexpected setback. Additionally, having an area for data storage that is “DD ready” will help you reduce your legal costs and will allow you to provide prospects with all the information they need to make a choice.

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