Glossary - Due Diligence
Due diligence is the comprehensive appraisal of a business or person prior to signing a contract, or an act with a certain standard of care. It is a detailed investigation and analysis conducted by a buyer to verify information at hand and assess the viability and risks of a financial transaction or investment. This process can include the examination of financial records, operational procedures, legal obligations, and other relevant details.
Also known as
- Investigation
- Pre-purchase audit
Use cases examples
- Mergers and Acquisitions (M&A) Agreement: Prior to the closure of the transaction, the buyer conducts due diligence to verify the financial health and claims made by the seller about the business.
- Venture Capital Financing: Venture capitalists perform due diligence on startups, assessing their management team, market potential, technology, and business model before proceeding with the investment.
Considerations for investors
- Conduct a thorough review of the business's financial health, legal standing, and market position to assess the risk and potential of your investment.
- Evaluate the management team's experience and capability to execute on the business plan.
Considerations for founders
- Prepare your financial statements and business documentation in advance to streamline the due diligence process.
- Be transparent about the challenges and risks your business faces to build trust with potential investors.
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