A due diligence examination is designed to expose flaws and imperfections in the various aspects of the venture’s constitution and operations, which may have a substantial impact on the venture’s value, its prospects of growth, and the investor’s exposure to business, financial and legal risks upon consummating the investment transaction.

A due diligence examination typically entails a professional inspection, analysis, and evaluation of the IP, finance, taxation, internal and external contractual engagements, litigation risk exposure, regulatory compliance and corporate governance, registration, and constitution aspects related to the target venture and its business operations.  Such inspection will cover relevant documentation and records as well as target venture officers’ certificates to be issued on demand on certain matters.  

More often than not, and even more so when it comes to technology-based ventures in their early stages, IP constitutes the most important single factor in determining the venture’s value and future growth prospects. Material flaws and imperfections in the IP assets of the venture may therefore have a substantial impact on the desirable terms and conditions and possibly the viability of the contemplated investment,   

Apart from the conduct of a legal and IP due diligence examination in the preliminary stages, an investor would need hands-on legal counseling in drafting, negotiating, and formulating the investment transaction agreement and ancillary documents as well as in the post-closing stage when multiple registrations, reports, and regulatory compliance matters will have to be taken care of to complete the performance under the investment transaction.

Generally speaking, investing in an established company would require a more extensive due diligence examination because of the corporate aspects, but when investing in a partnership or an individual entrepreneur, it would be almost mandatory (for practical and customary reasons) to include in the investment transaction the transition of the venture into the corporate stage, which would mean formulating and negotiating a shareholders’/founders’ agreement and articles of association for the company and incorporating it in the framework of the investment transaction and as an integral part thereof.