Vadim Kotelnikov    

Due Diligence

Verifying the Information Received from a Prospective Investment Partner


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  Venture Financing Funnel Download PowerPoint presentation, pdf e-book

Venture Financing: Key Documents

Startup Business Plan



VC Investment in Start-Up Firms: Due Diligence

Factors that are Analyzed and Verified

Trust, but Verify

Due diligence is a form of research conducted by investors or prospective joint venture partners to make certain they're are getting exactly what they agreed to buy. Trust the information you receive from the prospective partner, but it's good business practice to verify the facts through interviews with third parties. Due diligence emphasizes understanding and quantifying the risk of the proposed deal, rather than the upside.

VC Investing in Start-up Firms

  3Ws of Venture Investing

For the venture capital investment process, due diligence means a rigorous investigation and evaluation of an investment opportunity before committing funds. This investigation is conducted by the parties involved in preparing a registration statement to form a basis for believing the statements contained therein are true and that no material facts are omitted. This process includes review of its management team, business conditions, projections, philosophy, and investment terms and conditions.

Absolutely vital to making a sound investment, due diligence verifies any business opportunities that survive the initial screening stage. For venture capital investments, as few as 10-15% of proposals make it past the initial screening stage to the full due-diligence process, and only 10% of those receive funding. This verification process consists of checking the accuracy of business plans, audited accounts, and management accounts; getting replies to warranty and other standard questionnaires; patent searches; and technical studies. Unpublished accounting information and subjective information are equally important; these data are collected by calling customers, suppliers, lawyers, and bankers, and by checking trade journals.



Due Diligence Study Areas


Chief Executive Officer; Number Two & Three in Management; Management Team; Organizational Structure & Decision-making; Management Characteristics; Corporate Ownership; Documentation; Management Reports; Strengths & Weaknesses


Corporate Organization; Team Download PowerPoint presentation, pdf e-book; Employee Compensation; Profit-sharing Plan; Bonus Plan; Payroll Records; Training Program; Attitude and Morale; Record Maintenance; Reports; Motivation; Hiring Procedure; Consultants; Ratio Analysis


In the Ordinary Course of Business (customer contracts; supplier contracts; agency/distribution agreements, etc); Not in the Ordinary Course of Business (partnership agreements, joint venture agreements, confidentiality/trade secret agreements, etc)

Proprietary Rights

Intellectual Property Rights (IPR); Intellectual Property Agreements; Pending or Threatened Claims for Infringement or Other Violations; Suspected or Alleged Infringement by Third Parties; Arrangements for the Disclosure of Confidential Information; Agreements with Employees and Consultants; Arrangements Relating to Proprietary Rights of Employees


Customer Value Proposition; Differentiation Strategies; Marketing Download PowerPoint presentation, pdf e-book People; Products; Customer Description; Customer Service; Competitive Analysis; Industry Analysis; Marketing Strategy; Product Distribution




Production Management; Personnel and Organization; Production Process; Purchasing, Suppliers, Shipping, and Receiving; Efficiency Analysis; R&D

Financial Area

Management, Personnel, and Organization; Cash and Investment Management; Documentation; Analysis of Financial Operations; Financial Statement Analysis; Other Assets and Liabilities; Taxes; Analysis of Projections

Reference Area

General information about the company; Reference List: Bank, Other Institutional Lenders; Accounting Firm; Law Firm; Suppliers; Customers; Competitors; Agents, Consultants, Stakeholders, Trade Associations, Brokers