Securing Investment For Your Business

Most of us know that a persuasive business plan; a competent board structure and demonstrated market advantage grabs an investor's attention. However, its usually not until a successful due diligence enquiry is completed that investment funds flow.

- Prince Mathibela

Due diligence is an investigation or audit of a potential investee company to confirm all essential facts and identify potential risks associated with the company. For instance, its financial enquiry leg typically involves auditing a company’s financial records and its tax compliance practices. The legal side involves investigations into factors as well as legislation which is determined on a case-by-case basis based on factors such as the stage in the investee company’s life cycle, the industry in which the investee company operates and the jurisdiction in which the investee company is headquartered. An investor needs to carry out due diligence enquiries and conclude investment terms to evaluate and mitigate any risks before resolving to invest.

Regarding the foregoing terms, in most cases, assuming the structure of the fund is equity financing, terms which will regulate the investment deal must also be settled and then documented before funds are disbursed.

What investors want to see in the potential investee company

Generally, the goal of the due diligence enquiry is to determine the legal and commercial soundness of the potential investee company. The normal chain of events is that an investor will source specific information and supporting documents from the potential investee company. Once the material is provided, assessed and the outcome thereon reached, the investor will study the outcome and either elect to proceed with the investment deal or not. At this stage of discussions, an investor will only decline to proceed with the investment if the outcome does not yield the sought legal or commercial rationale.