Due diligence

Equity Term

Typically the longest and most grueling part of equity fundraising for entrepreneurs is due diligence, which is the data collection, investigation and analysis by potential investors of the company raising money.

The older the company is and the more money it’s trying to raise, the more detail potential investors will want as part of due diligence. There are no industry or other standards as to how much detail is “enough.”

The term is used in other financial transactions such as mergers and acquisitions, and comes from organizations such as investment bankers, lawyers and accountants who have a legal responsibility to do their homework in order to pass judgment on a transaction. Thus they have to be “diligent” in their efforts to pass the right judgment, and have to exercise the diligence that is “due” for the particular transaction.

Don Gooding

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