Glossary - Due Diligence Fee
A due diligence fee is a payment made by a potential buyer, investor, or lender to cover the costs associated with conducting an in-depth review of a target company's business, financials, legal obligations, and other material matters. This fee is often paid upfront and is sometimes non-refundable, serving to ensure that the party conducting the due diligence is serious about the transaction and compensates the seller or the entity facilitating the transaction for the time and resources spent.
Also known as
- Investigation Fee
- Evaluation Fee
Use cases examples
- Investment Agreement: The investor agrees to pay a due diligence fee of $10,000 to cover the expenses incurred during the evaluation of the Company's financial health and market position.
- Acquisition Agreement: The buyer shall submit a due diligence fee of $15,000, to be used towards the detailed inspection of the target company's legal and financial conditions.
Considerations for investors
- Investors should weigh the cost of due diligence fees against the potential value and risks of the investment, ensuring that the fee is a reasonable expense for the insights gained.
- Investors need to clarify whether the due diligence fee will be credited towards the final investment amount or treated as a separate cost.
Considerations for founders
- Founders should understand that a due diligence fee might be requested by investors as part of the investment process, reflecting the seriousness and commitment towards the transaction.
- While negotiating, founders should consider whether the due diligence fee is fair and reasonable, and whether it is structured as a refundable or non-refundable payment.
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