Due Diligence Review

Due Diligence is the process of checking and validating the information presented to the VC by the venture. It involves a detailed examination of the company. The Due Diligence is usually conducted either by VC's staff or by external advisors (usually Chartered Accountants) who will assess and review the following points concerning the company and its management :

  • The corporate structure of the company - including subsidiaries, business names, constituent documents, shareholding pattern (including changes since inception), and the capital structure of the company.
  • Assets of the company - to ensure appropriate ownership and identify any encumbrances or charges over them.
  • Intellectual property rights/ ownership rights.
  • Financial statements of the company - to assess the past performance and the future prospects of the company. Also, management information systems, forecasting techniques, accuracy of past forecasting and the assumptions on which financial assumptions are based.
  • Key contracts - to assesses the impact of contractual obligations with customers, key employees, strategic alliances, licensing agreements and so on.
  • Organization chart and employee related issues like contracts, ESOPs, Unions and history of disputes.
  • Litigation – any actual or threatened litigation or dispute in which the company has been involved.
  • Contingent liabilities and their potential impact on the future of the business.

In case the business is at the concept stage, the technical and the financial feasibility of the business concept will be assessed. Also, the founders' backgrounds will be checked, independently and through contacting the references provided by the founders. References may also be taken up on the company (e.g. with suppliers, customers, and bankers) This review aims to support or contradict the Venture Capital firm's own initial impressions of the business plan formed during the initial stage.

The process is likely to take 3 to 6 weeks depending on the quality of the information supplied by you, the quality of the record keeping, the speed of retrieval in your company and the degree of your involvement in the process.