Due diligence is a two-way street. Although entrepreneurs may be hesitant to
check out potential
investors for fear of possibly turning away committed funds, it is imperative
that they learn as much as possible about the person to whom they are selling
part of their company. Every entrepreneurs should ask:
Are the investor's motivations in line
with what we can realistically offer?
Is the investor's personality
compatible with mine?
Does the investor share the same goals
What other firms has the investor
funded in the past? How did they turn out?
How active was the investor in those
Did the investor make constructive
What do entrepreneurs in those firms
(especially those that failed) say about the investor?
Did the investor stick with the firms
in times of trouble?
What industries does the investor have
Does the investor understand this
firm's industry sector? Can he or she contribute to this area?
How helpful will the investor be in
trying to obtain future rounds of financing?
Does this investor have the expertise,
contacts, and reputation to attract other potential investors and build the