Due diligence / Due diligence report

Due diligence is an investigation before a potential investment, the purpose of which is to reveal all possible facts and risks related to the object of the investment.

Due diligence, i.e. due diligence of a company, is a comprehensive investigation initiated by a person or company wishing to enter the given business as an investor, buyer or partner. Its purpose is that the parties can enter into a joint agreement based on the most accurate facts possible.

The backbone of the due diligence is a thorough analysis of the financial records and statements of the investigated target company . The experts conducting the investigation take several aspects into account when preparing the report. This could be the case, for example, of the company capitalisation, sales revenue, cash-flow, financial plan, intellectual property, the operational processes of business, the management of the company, the situation of competitors.

Due diligence is a long and complicated formal legal investigation process, depending on the size of the company, it can take weeks or even months. At the end, however, the investor will see more clearly. You can make a more informed decision. You can better judge whether the particular investment fits into your strategy. And the offer can be based on objective facts. 

The startup venture capital investments in this case, screening is special in some respects. The reason for this is mainly that it is in the early phase startup businesses usually have a very short history, and the classification of risks is also more difficult due to the characteristics of startups. Thus, in the case of startups, instead of checking past numbers, due diligence focuses much more on the reality of business growth plans. It examines whether the stated goals are realistic.

In the startup world, the majority of companies fail and fail by law. Due diligence in this area always covers how the investor can get his money back in such a case: that is, what valuable assets, rights and opportunities are available to the investor in target company.