In this chapter we will review in full the process of performing due diligence on a potential investee. We will walk through the various stages of the diligence process and provide key tips and things to keep in mind along the way. We will provide a framework that an investor can adapt and tailor as necessary for a given investment. Some of the key questions that we will address include:

After reading this chapter, you should have the tools you need to develop your own due diligence process and thoroughly investigate an investment opportunity. Ultimately, the goal is to help you make clear and confident investment decision based on the due diligence findings.

What Is Due Diligence?

Due diligence is the comprehensive investigation undertaken on an investment opportunity in order to help the investor assess risk, return and impact as you make your investment decision. Within the impact investing space, this process encompasses both financial and impact analyses. The process begins as early as the first meeting with a fund manager or entrepreneur as any interaction is an opportunity to learn something about the character of the people running the enterprise under evaluation. The process is complete once an investor has thoroughly vetted every relevant aspect of a potential investee and can confidently come to a conclusion about whether or not to make an investment. The purpose of conducting due diligence is to fully understand the business model, identify key strengths and weaknesses and develop a risk-reward analysis, all of which will ultimately inform the final investment decision. Keeping in mind the fact that virtually all investment entails some level of risk, there is no guarantee your investment will perform well with both financial and social returns; but with these key practices in your tool kit, you'll be better prepared to assess the opportunities and understand potential pit falls.