list of due diligence investigation

What types of due diligence investigation should an angel investor do for a startup?

Although startups can vary greatly, one thing they all have similar is the requirement for finance. Angel investors are among the most common finance in the beginning phases. 

Are angel investors real humans or fictitious beings? The term “angel investors” relates to buyers who are willing to invest in young businesses in the expectation that they will grow, provide worth, and even make some sufficient return on their investment plus some additional gain. The fact that angel investors provide not only monetary assistance for the business but also all other types of strategic support for its growth is among the main factors that entrepreneurs use to decide which investors to use as their seed capital.

People invest money in the stock market, which is risky, but some also increase company risk and financial risk by one or two levels. You invest in it and patiently wait for a liquidity event to occur before taking money out. Therefore, due diligence investigation should be carried out before investing in a startup company. 

 

Here is a list of due diligence investigation do:

 

Financial due diligence investigation

Financial due diligence investigation

Any potential investor would want to be certain that your company is not bankrupt or suffering from any other issues which would deem it a poor investment. Because of that reason, the prior financial statements will be requested by every investor. to review the startup’s tax returns, balance sheet, statement of income, and list of clients transactions (including the clients’ names and the periods of the transactions) and other key financial documents that are ready to be sent over.

 

Employees and the founder’s reputation

Employees and the founder's reputation

For any investment, assessing the executive team is essential. Investors examine the owner’s academic credentials, professional experience, and challenges before making an investment. Investors can evaluate reputational risk by learning about the startup’s lifestyle, hobbies, interests, family business interests, and social ties. Prior experience, business functions (strengths and weaknesses), and entrepreneur succession should all be carefully considered. 

Angel investors typically fund teams rather than people. So they will probably like to learn much more about the business’s training of its employees. They would perform due diligence on the staff to ensure that the team has the skills required to carry out and produce substantial items. Before issuing a check, an investor would want to have a conversation with a few key employees to get their perspective on the firm.  Angel investors are looking for a crew with a variety of skills, including product design, sales, and client service.

 

Intellectual property due diligence investigation

Intellectual property due diligence investigation

IP due diligence is a requirement for organizations with a substantial technological focus. The IP due diligence process includes Evaluation of the company’s intangible resources, verification of the legality of IP rights, and risks associated with estimating their true potential value. It is crucial to demonstrate whether your company can genuinely sell the goods that were recommended. Consider whether you haven’t submitted a trademark application or registered a trademark. If so, it is important to go ahead and do that before engaging an angel investor to demonstrate your commitment to safeguarding your company’s intellectual property. 

 

Market value investigation

Market value investigation

Angel investors would conduct an in-depth market investigation of your business’s items or services. an angel investor is likely to delve thoroughly into inquiries about the market, such as the number of clients, who they use, the startup’s major competitors, and plenty more. They’ll want to ensure the company they’re investing in has a sizable share in the market to seize and a competitive edge.

 

Although investing in new businesses is an excellent way for companies to diversify their holdings and aid the success of entrepreneurs, it is not risk-free. Even if a corporation has confidence in cash flow estimates, what seems excellent on paper might not hold true in practice. Investors cannot afford to compromise on conducting their due diligence when looking at startup investments.