Key Steps in Business Due Diligence

"You’re the first developer to ever show me this." Here's why investors wire $100K+ checks: A few weeks ago, I was on a call with an investor walking him through one of our JV deals. When he said that...I was honestly shocked. I didn't share anything groundbreaking about the deal. It was just real due diligence. But he was used to the pitch that 99% of GPs make. They show up with: • An excel pro forma • A list of Zillow comps • A contractor estimate (maybe) • A pretty pitch deck full of renderings That might impress retail investors. But institutional capital is underwriting your risk, not your pitch deck. Here’s what we include before we ever ask someone to write a check: 1. Verified Demand • Third-party market studies (not your broker’s gut feeling) • Local appraisal comps, absorption rates, vacancy trends • Cost: $2K–5K • Outcome: "Here’s proof this thing will lease or sell." 2. Construction Cost Validation • At least two contractor bids • Plus a 3rd-party estimator using RS Means and local data • Outcome: "We’re not guessing at $312/sq ft — we’ve confirmed it." 3. Environmental Phase I • Wetlands, soil, stormwater — all flagged early • Cost: $3K–8K • Saved us $500K+ on one site that would’ve been a disaster 4. Utility & Infrastructure Assessment • Where’s power coming from? • Can the site support septic or sewer? • How much is it to extend water lines? • These “hidden” costs add $50K–$200K fast 5. Regulatory Risk Map • What’s the timeline for entitlements? • Any NIMBY patterns in council meetings? • Are similar projects getting approved or denied? 6. Stress-Tested Financials We model every deal three ways: → Base case (what we expect) → Conservative case (costs up, delays hit) → Disaster case (soft demand + rate spikes) Why spend time and money on the extra due diligence? Because investors don't care about your deck; they care about YOU the operator and how prepared you are. Anyone can show a well-designed deck. But the thing that creates real relationships and repeat investors: do your due diligence, even if it costs you more on the front end. This is the difference between “looks good on paper” and “let’s wire funds.” Is due diligence part of your competitive advantage? -- If you own land and are looking for a partner to help you develop it, reach out to connect. Eugene Gershman

Today, I came across Laura Frederick's interesting post discussing acknowledgments of intellectual property rights in contracts. The concept often appears in IP provisions, where one party acknowledges that the other party owns all IPR in a product. However, this raises a question: 𝗛𝗼𝘄 𝗰𝗮𝗻 𝘄𝗲 𝗯𝗲 𝘀𝘂𝗿𝗲 𝗼𝗳 𝘁𝗵𝗶𝘀 𝗼𝘄𝗻𝗲𝗿𝘀𝗵𝗶𝗽? These acknowledgments can be pretty tricky, especially in IP-heavy deals. From my experience with cross-border IP deals, acknowledging someone else's IP ownership can be risky if you haven’t done your due diligence. Estoppel laws could prevent you from challenging IP ownership later, even if you discover new evidence. Therefore, it's crucial to thoroughly verify the IP ownership before making any acknowledgments. So, here’s how to make sure you’re covering all your bases: - 𝗩𝗲𝗿𝗶𝗳𝘆 𝗢𝘄𝗻𝗲𝗿𝘀𝗵𝗶𝗽: Check that the person/company claiming ownership really has the rights. Ask for and review their proof. - 𝗖𝗵𝗲𝗰𝗸 𝗥𝗲𝗴𝗶𝘀𝘁𝗿𝗮𝘁𝗶𝗼𝗻 𝗥𝗲𝗰𝗼𝗿𝗱𝘀: Look up official IP databases to confirm everything’s properly registered and up to date. - 𝗥𝗲𝘃𝗶𝗲𝘄 𝗖𝘂𝗿𝗿𝗲𝗻𝘁 𝗔𝗴𝗿𝗲𝗲𝗺𝗲𝗻𝘁𝘀: Make sure there aren’t any conflicting claims or restrictions from existing agreements. - 𝗟𝗼𝗼𝗸 𝗳𝗼𝗿 𝗘𝗻𝗰𝘂𝗺𝗯𝗿𝗮𝗻𝗰𝗲𝘀: Ensure the IP isn’t tied up with liens, licenses, or other claims that could affect its use. - 𝗖𝗵𝗲𝗰𝗸 𝗟𝗲𝗴𝗮𝗹 𝗦𝘁𝗮𝘁𝘂𝘀: Confirm the IP’s legal standing, including any disputes or litigation that could impact its validity. - 𝗚𝗲𝘁 𝗥𝗲𝗽𝗿𝗲𝘀𝗲𝗻𝘁𝗮𝘁𝗶𝗼𝗻𝘀 𝗮𝗻𝗱 𝗪𝗮𝗿𝗿𝗮𝗻𝘁𝗶𝗲𝘀: Have the parties explicitly state their ownership and agree to cover potential third-party claims. - 𝗥𝗲𝘃𝗶𝗲𝘄 𝗙𝗿𝗲𝗲𝗱𝗼𝗺-𝘁𝗼-𝗢𝗽𝗲𝗿𝗮𝘁𝗲: Make sure the IP doesn’t infringe on others' rights and you can move forward without legal issues. - 𝗖𝗼𝗻𝘀𝗶𝗱𝗲𝗿 𝗜𝗻𝘀𝘂𝗿𝗮𝗻𝗰𝗲: Think about getting insurance to cover any potential IP disputes or legal challenges. - 𝗗𝗲𝗺𝗮𝗻𝗱 f𝘂𝗹𝗹 𝗗𝗶𝘀𝗰𝗹𝗼𝘀𝘂𝗿𝗲: Ensure all relevant issues, including any ongoing litigation or potential claims, are fully disclosed. - 𝗔𝗱𝗱 𝗜𝗣 𝗗𝘂𝗲 𝗗𝗶𝗹𝗶𝗴𝗲𝗻𝗰𝗲 𝗥𝗲𝗽𝗼𝗿𝘁𝘀: Include detailed reports, like market landscape analyses and freedom-to-operate assessments, in your contracts for R&D investments. Thorough due diligence can save you from future headaches and help you stay ahead of the game. #IntellectualProperty #IPDiligence #LegalTips #IPRights #DueDiligence #LegalAdvice #Innovation #TechLaw #BusinessLaw #IPManagement

Dealmaking just got a whole lot harder. We’re on tariff time now. If you’re trying to buy or sell a business, gear up as changes make way through markets. Uncertainty is high. Valuations will shift. But opportunities remain. Buyers need to ask the right questions, and sellers need to get ahead of this. Here’s a list to supplement your diligence. Questions: • How is the business impacted by tariffs? • What’s the hit to gross margins? (by product and segment) • What’s the plan to address cost increases? (absorb, pass through, cut elsewhere?) • Relative to competitors, is the business uniquely exposed or uniquely protected? (maybe it’s a winner) • What’s the exposure by supplier? (examine last 2 TTM periods of spend, by product and country of origin) • What’s the exposure by customer? (examine last 2 TTM periods of sales, with industry/segment and location) • Are alternative suppliers available and being pursued? • What supply chain disruptions have occurred or are expected? What’s the contingency plan? • What import/export regulations affect the business, if any? Documents: • Supplier contracts (look at price escalation, force majeure, termination). • Customer contracts (same – may need to deploy them). • Communications with suppliers (look for disputes, price hikes, terminations, slowdowns). • Communications with customers (look for disputes, pullbacks, pricing issues, bad debts). • Import/export licenses, permits and compliance procedures. • Any past or current investigations or disputes related to customs or trade laws. The policy climate can change with the stroke of a pen. Already has! Don’t do deals the same way you were doing them last year. What would you add to this list?

Organizational due diligence is on the rise in PE. And for good reason: PE firms have caught on that your value creation plan is doomed unless the target company has the right org to make it happen. If your firm isn't consistent or disciplined about org due diligence, time to level up. Why? The margin of error in PE deals is razor-thin these days. 4 areas to focus on: 1. LEADERSHIP > You want to understand: → Leaders' strengths/weaknesses/motivations → Where to back / remove / repurpose → How healthy and performant the ELT is 2. TALENT > You want to understand: → Roles that most impact value creation → Quality of talent in those roles → Strength of the company's "people practices" 3. CULTURE > You want to understand: → What is the culture today? → Strengths & risks? → How change ready? Growth ready? 4. CAPABILITIES > You want to understand → What capabilities matter most to the VCP? → How strong are those today? → Post-close actions needed to bolster? Add these 4 things together, and it helps you to answer 2 critical questions: → How well positioned is the target company to achieve our investment thesis? → What actions do we need to take post-closing to get the company well positioned to achieve our investment thesis?

𝐈𝐧𝐯𝐞𝐬𝐭𝐨𝐫 𝐃𝐮𝐞 𝐃𝐢𝐥𝐢𝐠𝐞𝐧𝐜𝐞 𝐂𝐡𝐞𝐜𝐤𝐥𝐢𝐬𝐭 Most investors skip real diligence and rely on gut feeling. This guide shows how to do it right—with 13 sections covering everything from team dynamics to intellectual property and regulatory risk. Key Takeaways: 1️⃣ Assess the founders deeply – Commitment, character, skill gaps, and chemistry between co-founders matter more than pitch polish. 2️⃣ Understand the business and its shares – Look at the current cap table, any preferred shares, valuation logic, and exit assumptions. 3️⃣ Analyze market position – Demand validation, USP clarity, competitive landscape, and pricing logic are all musts. 4️⃣ Test the tech – Look for IP protection, market readiness, potential platform effects, and adaptability to shifting trends. 5️⃣ Scrutinize financials and projections – How realistic is the model? What assumptions drive it? When will it be cash-flow positive? 6️⃣ Go deep on legal, compliance, and governance – IP ownership, employment contracts, litigation exposure, and anti-corruption practices are non-negotiable. 7️⃣ Build your own conviction – Due diligence is personal. Use this checklist as your framework, not your crutch. Credit: Growth Capital Ventures PS. 🔔 Get funded 3x faster with AI-powered fundraising: https://lnkd.in/eF6ZtEHK

How acquirers can shave weeks off an M&A due diligence process When an acquirer takes too long to conduct diligence and to close the deal, they risk the deal: 🚫 Sellers become frustrated as prolonged due diligence creates uncertainty, and strains the seller both financially and emotionally. 🚫The acquirer is conveying hesitancy to do the deal through excessive information demands, eroding sellers' trust in the process. 🚫The deal is at risk of collapsing due to exposure to market fluctuations or to competition jumping in when timelines are extended beyond the exclusivity period. Here’s a simple hypothesis based approach that can help shorten this period and lead to quicker decision making. 🚩 Step 1: Together with the P&L owner (deal sponsor) and the functional leads, develop a short list (3-5) of hypotheses that the deal team needs to believe in for the acquisition to be successful. This needs to be done BEFORE going deep into the data room. These could be either (1) sources of value or (2) risks to be mitigated. Examples (illustrative): 1️⃣ Analysis of operational data will confirm a projected 15% reduction in combined supply chain costs post-close. 2️⃣ Customer satisfaction survey data indicates an 80% retention rate post-acquisition, with key accounts expressing commitment. 3️⃣ Market trend analysis will show a 12% annual growth in demand for the acquired entity's niche technology solutions over the last three years. 4️⃣ Regulatory compliance audit will identify zero instances of non-compliance with industry-specific regulations in the last five years. 5️⃣ Historical customer churn data will demonstrate an average customer retention rate of 85% even during periods of market volatility. These hypotheses can be sourced from the valuation model drivers, and from the (acquirer’s) business unit leadership team. 🚩 Step 2: Try to validate or invalidate the hypothesis through the diligence process - based on the data room or conversations with the management team. The results will be “pass” for some areas and “fail” for others. 🚩 Step 3: Regroup after - the deal team has reflected the results in the valuation model and - after the deal sponsor and functional leads have either become comfortable with the findings or consider them to be deal-blockers 🚩Step 4: At this point, all the hypotheses would have been either confirmed or invalidated. There will of course be additional takeaways but if the hypotheses were built right, the most important takeaways will bubble up to the top of the list. Its now clearer whether to pass on the deal, or go back to the target with the right revised valuation and deal structure. -- We help investors and companies to do smarter deals. Message me if you're looking for help with M&A. Follow me for insights about M&A. Like or comment with your thoughts. Reshare the post if it was helpful. #mergersandacquisitions

The best due diligence questions aren’t about the past. They’re about repeatability. It’s easy to get lost in historicals during diligence. Revenue CAGR, EBITDA margins, year-over-year growth. All important, but only part of the story. In private equity, what really matters is this: Can this business generate the same (or better) results again, without heroic effort? That’s why the smartest diligence processes shift focus from what happened to whether it can happen again. And that means asking questions around repeatability and scalability: Are lead generation channels reliable and cost-effective? Look at CAC, payback period, and lead source concentration. Is the sales engine process-driven or people-dependent? Dig into win rates by rep, pipeline velocity, and quota attainment. Are margins structurally sound or propped up by one-off deals? Analyze gross margin variance by product line and vendor dependency. Is growth supported by systems or stitched together by manual effort? Assess tech stack utilization, automation percentage, and ops headcount vs. revenue. The goal of diligence isn’t just to confirm past performance. It’s to uncover whether the performance is durable. Because in PE, value is created when you can scale what’s working, without breaking what isn’t.

When I first started doing this work, I’d just do what the Client asked for. Until I had this case: We once had a Client invest $XX million in a company where the Client wanted to go fast and only focus on red flags - a basic check list to get the deal over the line. Six months later, all hell broke loose: - Payments delayed with flimsy excuses - Partners complaining about breach of contract - Promises of buying inventory that never happened Turns out, this company had a history of fleecing partners. And now our client was tied to the mess and had to clean it up. What I learned: A track record of burning bridges won't show up on a check list approach. Sure you might be able to find some litigation in the public record, but the company could chalk that up to the normal course of doing business. To catch these problems, you need to dig deeper: 1) Reference checks with past partners, not just the cherry-picked ones 2) Litigation searches for contract breaches, judgements, complaints. Where litigation databases are not available, do the manual records retrievals (despite some taking up to 2 weeks). Where even that is not available, do discreet source inquiries! 3) Forensic analysis of financials for cash flow issues or payment inconsistencies Real investigative due diligence means vetting how a company operates inside and out, and preventing surprises from showing up. #dealintelligence #duediligence #PrivateEquity #mergersandacquisitions

When it comes to navigating unchartered waters, one Head of FP&A learned the value of identifying and quantifying the company’s risks and creating a mitigation plan to address each one. What it all boiled down to was operational risk, i.e., failure to achieve your goals due to challenges faced in regard to people, processes, events, systems — anything involved in day-to-day business activities. As a category, this stands in contrast to market, credit or liquidity risks. The challenge of managing #operationalrisk is identifying and quantifying events and outcomes that generally are discussed qualitatively.  Full article: https://lnkd.in/digX6k2t Excerpts below: ➡ BACKGROUND/CHALLENGE: The presenter of this case study was working as the Head of FP&A for the Middle East cluster in a global pharmaceutical company, handling more than 30 countries. It was 2020, and COVID-19 had turned the world upside down. “Everything had been impacted,” he said. “How we lived and interacted with each other, how we worked and communicated, how we moved around and traveled. Every aspect of our lives had been affected.” ➡ APPROACH: The Head of FP&A relied on his experience as a finance business partner and used the opportunity to upskill his team. The team developed a standardized checklist for the three main business divisions, targeting the four primary functions in each division that held the greatest potential for financial loss, defined as a negative impact on the company’s cash flow and P&L. Their approach looked like the images below. The data they gathered was then aggregated into a Business Input spreadsheet. The team assigned finance ownership to each category and its associated risks and the functions, countries, franchises and products that would be affected. They then asked a series of questions: -Is the risk impacting our budget? -Is the risk included in the business plan or budget? -Which quarter will it impact? -What is the probability that this risk will happen? “It is very important to quantify the risk,” said the Head of FP&A. “Everyone can say, yes, I have a risk, but how much, which months, which quarter? What is the probability of the risk?” ➡ OUTCOME: Working through this process helps the organization and management to have, on a weekly basis, full visibility of what is happening, the associated risks, and a clear mitigation plan. “It is a powerful tool and a powerful process,” said the Head of FP&A. Different scenarios are run based on the risk probability and a mitigation plan is agreed upon, as well as who owns each mitigation plan. “At the same time, we think like a team: how can we mitigate each risk item? All the functions work together to mitigate the risk,” he said. The company was able to meet its annual budget during the very difficult period of widespread lockdowns. Full article: https://lnkd.in/digX6k2t #finance #fpanda #operationalrisk #riskmanagement

Due diligence processes are known for being lengthy, intense and cost a lot of money. For the most part, they're also pretty standard to be honest, but in agriculture there are quite a few very particular aspects that one would need to spend time and resources on.. because of this, I've approached DD in a phased approach that balances thoroughness with resource efficiency, and it's worked for me for the past two decades.. Phase 1: Preliminary Assessment Begin by focusing on essential financial metrics—net debt and EBITDA from the buyer's angle, coupled with sector-specific deal-breakers like water availability (for deals in agriculture). This initial phase is designed to be swift and economical, offering an early gauge of the investment's feasibility with minimal outlay. Phase 2: In-depth Analysis With an investment committee approval, moving to Phase 2 is advised only if Phase 1 uncovers no significant impediments. This subsequent stage delves deeper, consuming about 85% of due diligence resources on detailed legal, environmental, operational, and market assessments. -- Adopting this phased method enables investors to efficiently sift through potential deals, dedicating substantial due diligence efforts only to those that have cleared preliminary checks. It's a strategic way to manage resources effectively while still ensuring a comprehensive evaluation of viable investments. #mergersandacquisitions #privateequity #privateinvestments #agriculture #agtech #agribusiness #duediligence