Due diligence is a process of researching and analysing a company or organisation in preparation for a business transaction. It means taking reasonable care to verify that the information that is being relied on as the basis for decision-making is true.
When used in the context of a take-over or investment in an existing business, due diligence usually requires careful checking of a large amount of legal and financial information. In the case of a start-up business, however, there is often not very much factual information available yet, so due diligence can refer to the care that the founder takes in preparing the business plan, and the care that a potential investor takes in evaluating that plan.
Read Startup Due Diligence for Investors – Best Practices & Checklists to understand due diligence assessment from the point of view of a potential investor in a start-up business. An entrepreneur with a new business idea would also want to be sure that their business plan stands up to this level of scrutiny – both to reduce their own exposure to risk and to attract investors if required.
Due diligence survey
Conduct a web search for “due diligence” and select two sources that you feel are valuable, relevant and appropriate for your business idea. Use these resources, as well as the ones referred to above, to inform your thinking for this activity.
- Think about a famous entrepreneurial idea (it can be one that you have already considered in this course, or a different one).
- Imagine that you are a professional investor, being asked to invest in this start-up business idea. What are some of the questions would you ask when doing a due diligence assessment? Why?
- Write up your answers in your Learning Journal Blog, using about 400 words.
- Remember to tag or label your post using the course code: IENT101 (This is needed to harvest a link to your blog post in the course feed.)