“Due diligence” is a somewhat technical phrase used to describe a range of assignments, legal obligations, reports and investigations which take place in business, manufacturing and law. Its most frequently heard version is the one pertaining to business, where “duediligence” refers to the steps taken by venture capitalists before investing a round of capital in a startup, the ongoing investigation as to how the funds are being distributed, or the precautionary steps taken by a larger company in deciding to acquire a smaller company.
Sometimes the phrase is referred to as a capitalized proper noun: Due Diligence.
The precise definition of “due diligence” varies between firms and organizations. In manufacturing for example, certain environmental requirements must be met, which are verified in an Environmental Site Assessment called a “due diligence report”. It consists of a checklist of specifications and sections for open commentary. Ads by Google |IT Due Diligence Experts |Information & Communications Technology Due Diligence. Munich | | |www. oach. de | |Due Diligence Checklist |Industry proven 600+ pt checklist available for immediate download | | |www. birds-eye. net | |Due Diligence |Worldwide offices Know-how, experience & resources | | |i-factanalysis. om/due_diligence | |M&A Cross-Border |Mergers & Acquisitions Business Sales, Invest in Europe | | |www. eleusis. eu | |Free Trading Webinar |Learn how to use technical analysis to make better security trades. | | |www. equis. com |
In venture capitalism, due diligence involves looking into the past and present of the people and structure of a company requesting venture funding. For instance, venture capitalists are wary of investing in companies that lack people with credentials or a proven track record. Depending on the overall level of caution in the investment environment at the time, a duediligence investigation may be more or less stringent. Typically a venture capital firm will have a dozen or more investigators whose task is to research specific details of the personal history of people in the company.
With the Internet, researching a person’s past associations and experience has never been easier, much to the delight of investment communities. Of course, due diligence is not a panacea against investment failures. Even a company made up of well-educated high achievers can falter due to unpredictable market conditions, unforeseen competition, or technical setbacks. Due diligence generally refers to the background checks conducted after a venture partner has already made a decision about the company.
Typically, partners will prefer to invest in companies led by people they already know are very trustworthy, and probably have been given funds in the past. In law, due diligence refers to precautions that are supposed to be taken by a person or company in some context. For example, did the company thoroughly check their product beforehand to ensure it was non-toxic or was not a strangulation hazard? If they do not, and bad results come of their negligence, they can be held criminally liable.