Due diligence and corporate clean-up

As outlined in "Private Placements: The mechanics of raising capital for your business" http://wistechnology.com/article.php?id=1650 , when raising equity capital, one of the first things a company should do is prepare a business plan. The business plan often forms the centerpiece of the private placement memorandum (PPM), the disclosure document that is typically circulated to investors.

Once the company has a good draft of the business plan prepared, the people preparing the PPM (e.g., the company management, attorneys, accountants, and/or consultants) often turn to "due diligence" and corporate "clean up." Due diligence is the investigation that ensures that the company-related information and summaries included in the PPM are accurate and complete.

It is not uncommon that during the due diligence process, issues are uncovered that either should have been addressed earlier but weren’t or that need to be completed or addressed prior to the company issuing securities to outside investors. Remedying those items is often referred to as corporate clean up.

Due diligence is often conducted by both angel and venture capital investors, so it is important to get it right before opening the company up to outside scrutiny.

Matt Storms and Sean Guse

Full Story: http://wistechnology.com/article.php?id=1696