Due diligence is a powerful investigatory process often used by investors to check and verify the other party’s claims before making an investment, but companies looking to attract investors can benefit from it too.
Funding from investors, particularly angel investors, is the lifeblood of start-ups. Businesses that are looking to get financing have a number of well-trodden strategies and approaches to draw from in order to attract such investors to their business.
The strategies include but not limited to spending time constructing well-rounded pitches, performing research to find the best-suited investors to a business or joining a start-up accelerator, among others. Most companies who look to attract investors are also keen to show results and forecasts – the number of customers they have now versus in the future when they get the funding they need. This is often a catch-22 situation whereby you need investment to get customers, but you also need customers to get the funding.
What most companies don’t think of, is using due diligence to sharpen their pitch. In this article, the due diligence specialists at Blackhawk Intelligence will breakdown what due diligence means, why it is important to investors and how you can utilise it to attract investment.
Due diligence explained
At its core, due diligence is an approach – often utilised in the legal and financial world – that involves one party investigating, verifying and confirming the claims of another party. Generally, the party performing due diligence will be close to signing a contract, investing in the other party or agreeing to warranties and indemnities, to name but a few.
Due diligence is done to mitigate any potential risk to the investigating party and to confirm (to the best degree possible) the claims of the other party. As such, due diligence is the process by which many businesses and investors protect their business interests. It is, essentially, a form of vetting.
As due diligence requires independent experts with enquiring minds to look at a full breadth of issues from various business areas covering financial and intellectual property, information technology and compliance, to human resources, companies often work with third-party due diligence specialists like Blackhawk Intelligence to seek the confirmation they need.
Why due diligence matters to investors
Due diligence is an important step for investors to perform before continuing to establish a relationship with another party where business interests are involved. The objectives are to mitigate risks, highlight potential areas of concern and provide valuable insights.
Due diligence can detail everything from company finance to market potential, and can even aid in identifying any future prospects of growth. Any key details that are missing or somewhat different from what you had been told by the other party will serve as red flags.
In addition, climate change is now dominating headlines; increasingly companies need to be accountable for their environmental responsibility. This has given rise to environmental ethics due diligence, follow the link to read more if you are interested in this topic.
Is due diligence a one-off process?
Despite being intrinsically tied to milestones that pose a significant level of risk to a party’s business interest – such as when signing a contract, purchasing businesses and forming partnerships – due diligence is not necessarily a one-time process.
As due diligence covers all business areas, from financial, legal, technology, innovation, compliance, employee health and safety, suppliers, customers to environmental, it will be beneficial to consider due diligence as more of a corporate way of life that should be performed with regularity to ensure risk is minimised.
How can due diligence help to attract investors?
As investors only look to invest in the companies which have the best chance to succeed and give them substantial returns, companies who perform regular due diligence stand out because the process indicates that they have a keen commercial sense and are prepared for any scrutiny. Consequently, they are likely to have a higher probability of achieving success.
For example, assuming you are a start-up working on the next eCommerce portal and with the help of due diligence, you have taken proactive steps to protect your intellectual property and know your business inside out. As a result, you are empowered to construct a more positive narrative of your business and present a more attractive proposition to potential investors or buyers.
Another example is, you are a well-established financial company who wants to expand overseas. In order to attract overseas investors and customers, you need to make sure that you have the best practise governance in place which can be maintained and evolved. Again, due diligence can help you to achieve that and boost confidence among your investors/ customers.
In addition, due diligence is a way to be absolutely sure that the information you share with investors isn’t wrong or misleading. At the same time, it also allows you to know what investors will find out about your business during their own due diligence efforts. This ensures that you can either rectify the problem in the short-term or put in place long-term plans to minimise the risk of the issue. This will also show potential investors that you are in control of your business and know what is going on within your own walls.
How Blackhawk Intelligence’s due diligence services can help companies to attract investors
The top priority for Blackhawk Intelligence’s due diligence team is to ensure that our clients feel empowered by our services. For those seeking investment, we can equip them with essential information that could make the difference when it comes to attracting an investor and ensuring that a potential deal isn’t lost out on because of an unknown issue.
We offer pre-emptive due diligence services – that can help businesses identify, understand and plan for any future transactions (such as investment) – and post-transactional due diligence services. Our pre-emptive efforts look into all aspects of your business – from public and non-public data research to performing compliance checks.
This scope need not be limited to the UK. Over the years, we have established a presence across the world – with a base in London and the Middle East, plus trusted resources across Europe, the US and the Far East.
Our commitment to the evidence-gathering process ensures that no stone is left unturned; however, we balance this rigorous approach with a commitment to ethics, discretion and professionalism.
Headquartered in London and fully compliant with the Data Protection Act, you can be assured that Blackhawk Intelligence offers the most comprehensive, far-reaching due diligence services to ensure that your business is in good standing as you seek investment.
To get in touch with one of our due diligence specialists today, call our London office on +44 (0)20 8108 9317 our get in touch using our online form.
This article was first published in 2011 and has been updated on 31/07/19.
If you found this interesting, you might also like:
- Due diligence isn’t just an option, it’s essential
- Environmental ethics due diligence
- Employment Background Check – sensible pre-employment due diligence
This post is intended to provide information of general interest about current business issues. It should not replace professional advice tailored to your specific circumstances.