In the course of business, especially where you are seeking to grow your company, the opportunity for strategic partnerships and investment needs to be actively sought.
I have been party to, and facilitated a number of transactions for clients and my own business, and there are a lot of chancers and con artists out there.
So when opportunities arise for investment or strategic partnership, as much as investors or partners want to do a due diligence on you, it’s as critical for you to do a due diligence on them.
This checklist is a guideline for you to use in doing an evaluation: the first thing to do, before you even start, is make sure you get a Non-Disclosure / Non-Circumvention Agreement signed, and after initial discussions, get a Letter of Intentsigned.
Where companies don’t want to sign these, it’s a red flag for you to proceed with caution; this is not the be-all & end-all of a relationship, as these parties may have certain policies in place, or reasons / processes themselves, but as a general rule, take heed.
Due Diligence Guide.
- Preliminary Assessment
- Research the investor’s or partner’s professional history.
- Review their previous investments or partnerships.
- Check their reputation in the industry.
- Alignment of Interests
- Ensure their interests align with your business goals and values.
- Determine their investment or partnership criteria.
- Financial Due Diligence
- Assess their financial health and stability.
- Review their financial statements and credit history.
- Investment History
- Analyze their track record of investments or partnerships.
- Look for successful exits or positive outcomes in their previous engagements.
- Legal and Regulatory Due Diligence
- Verify their legal status and any business registrations.
- Check for any ongoing or past legal disputes or litigations.
- Regulatory Compliance
- Ensure they comply with relevant industry regulations.
- Investigate any regulatory actions or fines against them.
- Operational Due Diligence
- Understand their business model and operational capabilities.
- Evaluate their operational efficiency and scalability.
- Assess the experience and expertise of their management team.
- Look for key person dependencies and leadership stability.
- Reputation and References
- Gather feedback from industry peers and stakeholders.
- Research media coverage and public opinion about them.
- Request and verify references from previous business partners or investees.
- Contact references to get insights into their working style and reliability.
- Red Flags to Watch Out For
- Look for discrepancies in the information they provide.
- Beware of evasive answers or reluctance to share details.
- Pay attention to negative feedback or bad reviews from past partners or investees.
- Investigate any patterns of problematic behavior.
- Note any history of legal troubles or regulatory non-compliance.
- Be cautious of any undisclosed legal issues.
- Questions to Ask
- To the Potential Investor/Partner
- What are your expectations and goals for this partnership?
- Can you provide examples of successful partnerships or investments you’ve made?
- To References and Industry Peers
- How was your experience working with them?Are there any areas where you think they could improve?
- Verification of Facts
- Cross-check their claims with independent sources (e.g., market reports, industry experts).
- Validate their track record with third-party data.
- Conduct thorough background checks using reputable agencies.
- Verify their credentials, affiliations, and professional history.
- Interrogating Facts and Information
- Analyze their data and claims critically.
- Ask probing questions to uncover underlying assumptions and motives.
- Discuss different scenarios and potential outcomes of the partnership.
- Assess their responses to hypothetical challenges and opportunities.
- Documentation
- Keep detailed records of all documents reviewed, questions asked, and answers received.
- Prepare a comprehensive due diligence report summarizing findings and recommendations.
- Final Assessment and Decision
- Weigh Pros and Cons
- Evaluate the overall potential and risks of partnering with the investor.
- Make an informed decision based on this comprehensive due diligence process.
