Due diligence is an essential aspect of fundraising, but it can cause a loss of time that founders should be focusing on their business. It’s also difficult to keep up with the constantly increasing number of requests from investors for information, which can result in delays in closing the funding rounds.
The extent of due diligence in fundraising differs depending on the stage of a company’s development and the kind of investor. For example, a seed-stage company must be prepared to provide information to equity investors such as venture capital firms and angel investors while companies at later stages may need to satisfy institutional investors with more thorough due diligence.
Tools that automate these searches reduce the workload on staff, as well as the time required to conduct due diligence in fundraising. For instance, donor prospecting and screening tools can automatically scan the internet for information regarding donors as well as their businesses or associations. This will cut down on time and effort compared with manual research and ensure that all possible risks are taken care of.
In addition to performing searches for information about a potential investor as well as conducting due diligence on fundraising, it also involves establishing policies regarding the kind of donations an institution will or won’t accept. These policies can contain guidelines that restrict any influence a donor has on the institution’s staff or trustees or programs.
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