FilmDoo is currently in the middle of raising capital for the growth and expansion of our business. As part of this process we have to prepare a number of things for due diligence from investors and/or potentially as part of a crowd-funding process we are considering.
As a lawyer who used to work in corporate law it’s a process I’m rather familiar with but one which I have found many start-up founders understandably have very little knowledge of.
Here are my top five tips and suggestions to successfully navigate through the due diligence process and get your start-up funded quickly!
1. Be Organised
It goes without saying that the more organised you are the quicker the process will be completed. The investors will require a long list of documents they want to see or areas they want covered. The more organised you are the quicker you can respond. It also makes you look more professional and efficient which will only benefit your chances of getting investment!
One suggestion is to have due diligence binders ready for each area of the business (i.e. contracts, technology, property), as this will demonstrate to the potential investors that you are well prepared. Using these business and legal checklists will also enable you to anticipate most of the information requested.
2. Ensure Key Documentation is in Place before Due Diligence Starts
The lawyers acting for the investors will have a list of things they are concerned about including contracts, IP rights, technology agreements, employment documentation and even concerns about litigation. So before you start the due diligence process carry out a ‘sense check’ to ensure that you have covered all the areas and risks the investors will be concerned about. If you don’t have the area covered then address them before the due diligence process starts either internally or through engaging external legal counsel.
3. Assign a Point Person for Communication
Have one person to coordinate the responses to the investors and their lawyers. This will enable the process to move more swiftly. Furthermore, it will also ensure the consistency of your messaging to the investors.
Respond quickly and professionally to any requests you receive. The investors and their lawyers will be evaluating the content of your response as well as how you respond to the various requests as part of their decision whether to invest or not.
4. Answer Questions Thoroughly and Professionally
As you answer each investor’s questions check to ensure that you have thoroughly answered what is being asked. If you’re communicating directly with the investor rather than through their lawyer it’ll be a great opportunity to get to know the investors better and to find out if they are still keen on investing. If the investors have concerns then this may be a way to find out about them and if possible address them whilst you still can.
5. An Opportunity to Build Trust and Rapport with the Investors
The due diligence process is a great way to develop rapport with the investors. Remember it is just the start of your working relationship and is a great opportunity to build trust and establish the groundwork for an ongoing partnership.
The due diligence process doesn’t have to be painful or difficult to steer through if you follow the advice above. Remember the investors are interested in your business and the due diligence process is simply about verification of the facts and carrying out a risk assessment. If you can navigate the process smoothly then it’ll lay the groundwork for finalising a successful term sheet and be the start of a successful long-term relationship.