Venture Capital For Dummies

Chapter 13

Due Diligence: Preparation and Fundamentals

In This Chapter

Outlining the phases of due diligence

Exposing the skeletons in your closet

Estimating timing of the due diligence process

Using the Documents Checklist

Originally the term due diligence was used by broker-dealers to describe the proper standard of care in investigating companies they took to market. Now the term is used everywhere — in the grocery store, on TV, and in other non-investment–specific situations. Nevertheless, the meaning is the same. Due diligence just means getting to the bottom of something in a very organized way. For venture capitalists, due diligence is the process of researching a company prior to purchasing shares.

Sound like fun? In this chapter, we explain the process and its purpose so that you’ll know what to expect.

Due diligence is not just for VCs. Angels (covered in Chapters 4 and 9) should — and probably will — perform due diligence. And even your Aunt Jenny should spend 20 plus ...