Due diligence checklist for VC, PE and M&A investors

What exactly is due diligence?

At its simplest, due diligence is an investigation to collect critical financial information—and it’s one of the most important workflows for any investment professional. The due diligence process will explore and confirm details of a company in an effort to uncover and mitigate potential risks in an investment decision.

Not only will the due process lead an investor or buyer to pursuit or drop a deal, it will lay the foundation for structuring the deal if you decide to move forward.

Making an investment decision, whether it’s committing capital to a fund or company, and heavily the potential risks of that investment depend on having accurate information. Good due diligence will evaluate the many risk factors that pertain to an investment. Proper due diligence includes investigating the previous and current performance of an entity, as well as the market, to gauge future growth and potential returns.

What are the types of due diligence for investments?

Due diligence is more than just a financial audit—it is an investigation into the many different parts of a company. From compliance to environmental regulations to evaluate a company’s entire IT infrastructure, good due diligence will uncover any risks that need to be addressed.

Assessment of financial health where financial statements, assets, debts, cash flows and projections are looked at

Assessment of legal and regulatory risks, especially important for heavily-regulated industries

Assessment of a company’s compliance with tax laws where tax returns, audits and agreements were looked at

Assessment of a company’s legal liabilities, including partnerships and licensing agreements

Assessment of a company’s intellectual property including patents, copyrights, trademarks and brand

Assessment of a company’s IT infrastructure and cybersecurity risks

Assessment of a company’s workforce, including the overall benefits, salaries and bonuses

Assessment of a company’s operational risks and opportunities

Assessment of the market size, share and potential trajectory to ensure deal makes strategic and financial sense

List of Due Diligence’s Top Vendors