What is due diligence ?

Due diligence is a technical term used in illustrating a legal obligation, range of assignments, investigations and reports that take place in business, law and manufacturing. However, the most used version of the term pertains to business, wherein due diligence refers to the steps done by venture capitalits prior to the investigation on round capital start up, the ongoing investigation done in determining how funds are distributed, or the precautionary steps used by a larger company in making decisions when acquiring smaller companies.

The term sometimes refers to a capitalized proper noun – Due Diligence. However, the exact definition of due diligence varies between organizations and firms. For example, manufaturers need to follow some environmental requirements, which are checked in an Environmental Site Assessment called a ‘due diligence report’, which contains a checklist of sections and specifications for open commentary.

Due diligence include past and present checking on the structure and people of a company requesting for venture funding regarding venture capitalism. For example, venture capitalists are cautious of investing in companies, which lack people with credentials or a proven record of accomplishment. Depending on the overall caution level in the environment of the investment at the time, a due diligence investigation may be more or less strict. Typically, a venture capital firm will have a several investigators whose task is to do research on specific details of people’s personal history in the company.

Of course, due diligence is not a cure against all investment failures. Even a company made up of high achievers can falter because of the unpredictable condition of the market, technical setbacks or unforeseen competition. Due diligence normally refers to the conducted background checks after a venture partner has already made decisions about the company. Usually, partners will prefer to invest in companies led by people they know and are very trustworthy, and probably contributed funds in the past.

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