It is evident in Shark Tank and other business shows how a convincing pitch can be destroyed when the past of a potential client is exposed. They might reveal a pending lawsuit, a hidden debt, or some other issue that stops them from donating their money. Due diligence, or DD, is what teams of fundraisers do to safeguard their prospects and donors from legal, financial and reputational risk.

The amount and depth of documentation requirements of a fundraising due diligence process differs based on the stage of your business’s startup and industry. It is important to remember that this is a crucial phase in the development of your business, especially when you’re seeking investment from venture funds.

Investors are interested in knowing about the material risks which can hinder your business from reaching its full potential. This includes a thorough analysis of the company’s overall strategic plan, current resources and your capacity to achieve your goals for funding.

Educational and non-profit institutions also conduct DD on potential donors to ensure that their mission and values align with the philanthropic donations they’re hoping to make. They will also take into consideration the impact of a donation on the organization and its leadership, as well as whether any particular project is at risk of being surpassed by a donor.

The creation of a clear and consistent risk-based rubric to guide the due diligence process for prospective donors can help you reduce DD efforts and accelerate timelines for fundraising. This will save your organization from having to begin all over with a new approach after an unexpected setback. Additionally, having a data room “DD ready” will help you reduce the cost of legal fees and ensure that you give prospective customers all the information they need to make a choice.

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