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SPECIALIST SERIES: What is Due Diligence?

No matter how interested they appear in a deal, prudent investors always follow a process called “due diligence” before making a financial commitment.  That means conducting research on the proposition to test the assertions of the promoters and seek additional information to the point where they are satisfied that they clearly understand the risks they are undertaking with their investment.   Every investor follows their own rubric which they adapt to fit the specific context of the situation but the basic questions remain the same at a high level.  Here are some samples to give you a sense of it but the list is much longer:

  • What is the problem being addressed?
  • How does the proposed solution compare to what is currently available?
  • What is the size of the addressable target market?
  • What is the product development plan?
  • Is there adequate protection for the enabling intellectual property?
  • Who is the user and who is the purchaser?
  • What are the product economics, e.g. product pricing, profit margin, available reimbursement, customer cost/benefit?
  • What are the funding requirements to meet the stated development milestones on what schedule?
  • Is the management team qualified to execute the plan?

As scientific founders, you are not expected to have all the answers up front but you will help yourself a lot if you anticipate them.  It is important to be fully disclosing and honest as you are developing a relationship with your investors who are making a bet on the future using best available current information.  This is a business research process that, done right, is open-ended, interactive and rigorous like the scientific research process.  BBIC staff understand that process of examination and can assist you with preparing for it.

– Carl Berke, PhD, Partners Innovation Fund