What is due diligence and typical required documents?
Due diligence is the process by which investors evaluate a potential investment opportunity. It typically involves a thorough review of the company’s financials, operations, management team, and industry. Early stage entrepreneurs should be prepared for the due diligence process by having all the required documents and information ready for the investors.
The specific documents required for due diligence will vary depending on the type of investment and the stage of the company, but some common examples include:
- Financial statements: This includes balance sheets, income statements, cash flow statements, and any other financial reports that provide an overview of the company’s financial health and performance.
- Business plan: A detailed document that outlines the company’s mission, products or services, target market, competitive landscape, and financial projections.
- Pitch deck: A visual presentation that summarizes the key elements of the business plan and is used to present the company to potential investors.
- Legal documents: This includes articles of incorporation, bylaws, stock option plans, and any other legal agreements that govern the company’s operations.
- Market research: Reports or studies that provide information about the industry, market size, and target customer segments.
- Intellectual property: Patents, trademarks, and other intellectual property documents that establish the company’s ownership of its products or services.
- Management team resumes: Resumes or CV of the company’s management team or key personnel that provide information about their qualifications and experience.
- Customer and partner agreements: Copies of any agreements the company has with its customers, vendors, or partners.
- Operational documents: such as company policies, procedures and standards.
It’s important to note that due diligence can be a time-consuming and complex process, and entrepreneurs should be prepared to provide additional information and documents as needed. It’s also important to be transparent and honest throughout the process, as investors will typically conduct their own research to verify the information provided.