You’re about to accept funding from an outside investor. All of your interactions with this individual or group have been very positive. You feel on the same page in terms of how you should be advancing the business. Their experience and connections appear to be complimentary for your goals. The terms offered seem fair to you and your legal counsel. You’re excited to move forward, but don’t sign that term sheet just yet. Your investor has been conducting due diligence on your company, and it makes sense for you to do the same. Yes, you’ve got your hands full juggling both running the business and fundraising, and it might feel like the last thing you want to do. But you won’t regret doing proper due diligence. Remember, this is someone you’ll be interacting with for several years.
A Google, AngelList, and CrunchBase search are a good starting point. This will typically lead you to discover information covering favorable outcomes. That’s the easy stuff to find. But you shouldn’t only talk with the companies that are killing it. The key to doing this right is digging a little deeper, find some deals where the company is struggling or has failed. Why is this so important? It’s easy for an investor to act with integrity when things are going well. How has their integrity held up when things got difficult? Did they honor their commitments? How have they treated the founders? What assistance were they willing to offer in times of difficulty?
An hour of research can save you hours of wasted time and heartache down the road. You’ll have further assurance you’ve made the right decision and can move forward with confidence.