Due diligence is an analysis of the factual basis, legally, financially, etcetera, for the deal to happen, it is a risk analysis. The investor gathers his information, whether himself or from the marketplace, and then has to decide whether the risk he or she is taking is warranted given the circumstances. In other words, it is a risk management tool. Due diligence may result in the participants making the deal, walking away from it, changing the terms or a renegotiation.

From an intellectual property point of view, investors want to make sure the company is incorporated and it owns the intellectual property that is in play. Sometimes, particularly in small companies,the owner of the company will try to keep the intellectual property in their own name. That is not something the investor wants.

Financial due diligence