Any company that plans to raise funds from, invest in, merge with, or acquire another business will undoubtedly embark on a comprehensive due diligence investigation. This can be an overwhelming and time-consuming event for all parties involved. It can be particularly daunting for startups seeking early-stage funding, but discipline and organization from the outset will help ensure a shorter, smoother process and possibly impress prospective investors because it demonstrates keen intent and industriousness.
Broadly speaking, there are three core areas of focus during a due diligence investigation. These include financial matters, legal issues, and business operations. Of course, these topics can then be further broken down into quite a few subcategories. Below is a non-exhaustive list of the types of documents that companies should expect to furnish to interested parties. This is by no means a comprehensive sample of items that are likely to be requested, but it can certainly serve as the basis for crafting a due diligence checklist.
Now, this particular list may seem like it covers a shocking amount of private information, but in many cases, this just barely scratches the surface. Some due diligence investigations delve into any and every detail imaginable. As a result, companies should anticipate having to divulge essentially all of the details associated with these particular topics and more.
It is also clear from this list that many of the documents that must be inspected contain sensitive and confidential information. In order to prepare for a due diligence investigation, companies should consider setting up a highly secure online repository to safely store this documentation. Utilizing a virtual data room is recommended, particularly a service that employs strong security measures.
In addition to safeguarding valuable, private information, virtual data rooms can facilitate the due diligence process because users can be invited to view the room’s contents. And, just because a party has access to a virtual data room does not mean that they have to have access to all of the documents saved in it. Virtual data rooms allow companies to control who accesses what, as well as track all data room usage via their use of permissions-based roles and audit logs. Plus, some virtual data rooms offer customizable non-disclosure agreements and watermarking, which are additional methods of protecting valuable data.
Companies merely considering future transactions would benefit from the establishment of a corporate repository. At a minimum, this sort of repository should be set up prior to entering negotiations with prospective investors. Not all due diligence investigations are the same, and surprises are to be expected. Nonetheless, creating a checklist and uploading important documents to a secure virtual data room will inevitably save time and hassle down the road.
For an example of a more comprehensive, detailed checklist, please download SecureDocs Due Diligence Checklist.