Due diligence is an essential part of the fundraising process, but it can consume time that founders should be investing in their business. It can be difficult to handle the continuous flow of requests from investors for information, which could result in delays in closing the funding rounds.
The amount of fundraising due diligence varies according to the stage of startup, and also by the type of investor. For instance, a seed stage company must be prepared to provide information to equity investors like venture capital companies and angel investors, while later-stage companies may need to satisfy institutional investors through more rigorous due diligence.
Tools that automate these searches reduce the burden on staff and the time needed to perform click resources due diligence in fundraising. Donor prospecting and screening software, for instance it will automatically scan the internet for public information on donors and their businesses and associations. This will cut down on time and effort compared to manual research and ensure that all possible risk factors are covered.
Due diligence for fundraising does not consist of only searching for information on potential investors, but also setting up policies on the kinds of donations institutions will take or not accept. These policies could contain guidelines to limit the influence of a donor over the staff of the institution or trustees or programs.