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Startups and Investor Due Diligence

The right investor will be completely impressed by the due diligence! It’s a win-win!



One of the most important lessons a startup executive team seeking to secure investment capital must learn is that due diligence is a “two-way street”. Nothing in the rules of the game prohibits a startup from conducting due diligence on potential investors. The primary objective of investor due diligence is to enable entrepreneurs to separate the “contenders from the pretenders”. That is, to identify those individuals or entities that are no or low probability candidate investors.


Potentially Negative Investor Motives

The concept of investment “contenders versus pretenders” raises the question, why would an investor express interest in your venture if they truly have no interest in investment?

  1. To learn about your market space for free;

  2. To learn about your technology for free;

  3. To learn about your business model for free;

  4. To acquire information to use in conducting due diligence on another similar startup;

  5. To acquire information to use in a competitive analysis;

  6. To receive a free education about an unknown business segment.

In other words, to have access to your intellectual property and research for free. Of course, this is a taboo subject in the funding world. After all, the investor is placed on a pedestal and the new startup must turn cartwheels to convince that its product is feasible, marketable and fundable. With the possibility of potentially negative investor motives in mind, let’s examine how to identify these true investor “contenders”.


Investor due diligence represents one tactic in a crafted comprehensive strategy for startups to differentiate themselves, and increases the probability to get in front of a viable investor.

Read more at Startus Magazine https://magazine.startus.cc/startups-and-investor-due-diligence/

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