Due diligence is described as an investigation process conducted in various types of investment transactions. It is performed at different stages of the investment process across a wide variety of business situations. Investment due diligence covers a variety of transactions and scenarios like M&A, debt financing, series funding for start-ups, long-term contracts. With several types of investment transactions, the process of due diligence could also vary depending on the transaction and scenario.
It is essentially an extensive investigation conducted by a potential investor seeking to invest in a business at a price obtained through negotiations or publicly-available sources. The core investment due diligence does not include preliminary activities like identifying and filtering investment opportunities. The objective of due diligence is to review the initial assumptions of the investors on the investment opportunity. It is also conducted to identify risks and uncertainties that were not captured during the preliminary assessment.