Due diligence is an investigation or audit of a potential investment or transaction to confirm material facts. It refers to the care a reasonable person should take before entering an agreement. Due diligence is applicable to investments, loans, grants, licensing agreements, mergers, acquisitions, and strategic partnerships. It involves gathering documentation on governance, intellectual property, sales, accounting, human resources, operations, and product development to evaluate whether the venture can be successful and the parties can work together. The process aims to minimize risk and give confidence for decision makers.

1. D

2. WHAT IS DUE DILIGENCE?
Investopedia
1. An investigation or audit of a potential investment. Due diligence
serves to confirm all material facts in regards to a sale.
2. Generally, due diligence refers to the care a reasonable person
should take before entering into an agreement or a transaction with
another party.

3. WHAT DOES THAT MEAN?
The 70-30 Rule*
70%: Intuition (aka: gut). Can they do it? Will they do it?
30%: Facts (aka: prove it): What have you done? How do you know?
*Subjective in all cases and different in a sale

4. WHEN IS IT APPLICABLE?
Examples and Personal Experience
Investment
Loan Guarantee
Grants
Licensing Agreement
Strategic Partnership/Founding Members
Merger
Acquisition/Sale

5. HOW IT WORKS
What They May Be Thinking
Private Investor: Can this venture make me money? Can this guy do
it?
Angel Investor: Interesting concept. I like this CEO. Can I make
money?
Committee: Do they have enough to go before our investor group?
Consultant (scrubs deals): Why should I believe you? Who are you?
Partner: Will they deliver? Can we work together? Can we get more
sales?
Founder: Are they trustworthy? Who is leading?
Buyer: Is this going to propel my business forward? Is this added value?
Entrepreneur: Is it enough? Can I make the business case?

6. ANGEL INVESTMENT EXAMPLE
Sub-
Contact Membership
Coherent, clear, well- Committee 15 min pitch
written exec summary 15 min pitch 5-10 min q/a
or business plan 5-10 min q/a Who you
Who you know/ED. Who you know/Champion.
know/Champion.
DUE Term Sheet Assignment
DILIGENCE Risk Assessment Reports
Team Membership Vote Board Membership

7. NO MATTER WHAT
As an entrepreneur, your fiduciary
responsibility is to maximize wealth
for your shareholders. In good faith, you
must be on your game and be prepared.
Have confidence (not arrogance).

8. DOCUMENTATION
Version Control:
Governance: formation papers, operating agreement/by-laws, cap table,
board notes, lawsuits (current or pending)
Intellectual Property: applications, process documents, awards
(trademarks, copyrights, patents)
Sales: customer list, pipeline, projections/actual, demos/presentations,
client testimonials
Investment package: business plan, financials, PPM, deck, qualified
investor

9. DOCUMENTATION
Version Control:
Accounting: tax documents, licenses, payments, A/R, A/P, debt,
insurance
Human Resources: employee guides, org chart, compensation, bios,
hiring/attrition
Operations: suppliers, partners, implementation/fulfillment, service
Product Development: new product pipeline, market need,
risk/contingency

10. DON’T GET IN A BOONDOOGLE!
Don’t waste their time or yours
Do it - Document it
Gives you confidence about the business
Storage
Due diligence e-room: access to various levels of information.
Notebooks: Some like paper.

11. WHAT DOES THAT MEAN?
The 70-30 Rule*
Leadership. Can they do it? Will they do it?
Facts. What have you done? How do you know?
*Subjective in all cases and different in a sale

12. Thanks!