What is due diligence and legal due diligence?

Rob Coneybeer / November, 2017

Description

Rob Coneybeer, Managing Director at Shasta Ventures explains what happens during a due diligence and legal due diligence.

Video Transcript

What is due diligence and legal due diligence?

The diligence breaks down into a couple of different categories, and the way to really think about diligence is we’re trying to get to know you better and we’re trying to get to know the opportunity better. That can break into a number of different things: one could be just time spent getting to know how you build the product, why you build the product, we do a lot of questions that way. Having that discussion with not just the founder but other members of the management team, we get to learn more about how they think and how strong those people are.

Often, we call customers, we might call customers that we happen to know already, so there will be references to both the entrepreneur will provide and people that will find on our own separately and that falls into both professional references and customer references as well. There might be technical due diligence, there might be other types of information gathering that we do, but that’s really what the diligence process is about. That’s to be separated from what people would call legal due diligence, which typically happens after we issue a term sheet and we agree to invest.

The legal due diligence goes through and it takes a look at contracts and a lot of the other things that the company has done. And really that’s more about finding out whether there was any material misrepresentation to what the company was doing as opposed to figuring out whether we want to invest in the company or not.

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