If you watch Shark Tank or other business shows, you see how a professional pitch and a confident appearance could quickly be shattered when a prospective client’s past comes to light. They may disclose an pending lawsuit, hidden debt, or some other issue that stops them from giving you their money. This is known as due diligence, or DD. it’s what fundraising teams have to do to ensure that their prospective customers and donors safe from legal, financial and reputational risk as well as compliance risks.

The details and documentation requirements of a fundraising due diligence process can vary based on the stage of your company’s growth and industry. However, generally speaking it’s a crucial stage of your company’s development particularly if you’re looking for investment from venture capital funds.

Investors will want to understand the material dangers that could stop your business from achieving its full potential. Investors want to know the risk factors that could prevent your company from reaching its full potential.

Educational institutions and nonprofits also conduct DD on potential donors to ensure that their goals and values are in line with the philanthropic contributions they’re hoping to make. They will also take into consideration the impact of a donation on the organization and its leadership as well as whether an individual project is in danger of being overtaken by a supporter.

Developing a clear and consistent risk-based rubric to guide the due diligence process for prospects will allow you to reduce DD efforts and accelerate the timeframe for fundraising. This will save your organization from having to begin all over with a new approach after an unexpected setback. Additionally, having your data room “DD ready” will lower the legal costs associated with it and allow you to give potential customers all the information they require to make a decision.

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