Yes, that's not what due diligence means.
What is due diligence?
Due diligence, also known as "due diligence", refers to a series of investigations conducted by the acquirer on the assets and liabilities, operating and financial status, legal relationship, opportunities and potential risks of the target company during the acquisition process. It is one of the most important links in the process of enterprise merger and acquisition, and it is also an important risk prevention tool in the process of enterprise merger and acquisition. In the process of investigation, professional experience and expert resources in management, finance and taxation are usually used to form independent opinions to evaluate the advantages and disadvantages of mergers and acquisitions as decision support for management. The investigation is not limited to reviewing the historical financial situation, but also focuses on assisting the acquirer to reasonably predict the future, which also occurs in the preliminary work of venture capital and public listing of enterprises.
Key points of due diligence
In the due diligence stage, investors finally confirm the entrepreneur's business model, products, business plan and positioning in order to be perfect. Due diligence is to get to know each other so as to facilitate better cooperation and development between them in the future.
The following are the aspects that investors pay attention to in due diligence:
1. Is the team strong and healthy?
If the startup team is small, angel investors may meet with each member. Angel investors will investigate the intelligence, loyalty, strengths, weaknesses, teamwork and management style of each team member. A dysfunctional team or an old naysayer in a key position will affect the success of financing.
2. Preparation of products or services
Technical investigation usually begins with engineers and technicians and product marketers. Angel investors will evaluate the progress of startups and evaluate products. All the preparation goals of entrepreneurs are to make angel investors completely satisfied with the functions and quality of the claimed products, and the whole team and R&D process must ensure that the products can be realized in the future. Finally, angel investors also need to confirm the protection and status of intellectual property rights.
3. Confirmation of market demand and scale
An excellent angel investor can help startups in many ways, but there is no guarantee that users will definitely buy the products of startups. Angel investors will find some potential customers from the market reference table given by entrepreneurs, talk to them and understand the market situation. Angel investors will also contact technical experts and insiders in interpersonal relationships. Without the pain of verification, there is no successful transaction.
4. Sustainable competitive advantage
If angel investors find unexpected competition, but entrepreneurs forget to mention it, it is the kiss of death. Angel investors should make sure that the differences owned by entrepreneurs are truly unique through industry analysis, and there will be no potential competitors in the future.
5. Company and financial situation
How are the financial and corporate milestones of a startup completed? Angel investors will check the existing financing and equity situation of the startup company and make an accurate market investment table. Poor credit of founders, unresolved lawsuits and insolvency will all increase the risk of financing failure.
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What is due diligence?