Due Diligence
Due Diligence for investments just means doing "reasonable" homework to fully investigate what you're investing in before proceeding
Due Diligence for investments just means doing “reasonable” homework to fully investigate what you’re investing in before proceeding. Note that what’s “reasonable” will vary based on how much you’re investing. The amount of due diligence given to a $25 investment would understandably be much less than for a $1M investment.
Typical due diligence categories include:
- Legal (Are all the appropriate documents in order? Is the entity you’re investing in properly structured for its purpose? Are there any Intellectual Property issues or concerns?)
- Financial (Are you satisfied with the terms of the investment, including any fees? Do you know where you stand relative to other creditors and investors? Does the business (or sponsor in the case of a real estate deal) have a realistic budget and financial forecasts for the future?)
- Business (Does the business model make sense? Is this company in a good position to capture an attractive and growing market? Are you satisfied with their sales and marketing strategy? Do you understand the likely exit scenarios?)
- Team (Many investors value the team more than the specific business, especially with startups, where there’s often a need to change course with more market feedback)
While in some cases you may rely on the platform to handle certain aspects of due diligence (for example, a broker-dealer or a Title III Funding Platform must perform background checks on key executives), not all platforms provide the same level of screening.
In some cases you’ll be able to find the relevant information and documents right from within the investment crowdfunding website, but you’ll almost certainly want to supplement that with your own homework elsewhere.
Want to learn more but aren’t sure where to start? You can explore 168 crowdfunding investment platforms in our database and learn more about the nuts and bolts of crowdfunding and alternative investing on our blog. Did you know you can use a self-directed retirement account to invest in many alternative investments? Rocket Dollar makes it easy, and when you sign up using that link you'll be helping to support YieldTalk.
Featured Reviews
EquityMultiple
EquityMultiple stands out among real estate crowdfunding investment platforms because their main investors and senior leadership come from institutional real estate finance, rather than being VC-funded. Seed funding for the company was provided by Mission Capital (later acquired by Marcus & Millichap) and their co-founders and board of advisors come from the New York real estate finance and law community. They offer fewer investments than some other platforms, but that’s a deliberate choice to take a more curatorial approach to dealflow. Overall, EquityMultiple is a solid choice for accredited investors looking for a hands-off way to invest in commercial real estate.
"Gain exclusive access to high-yield commercial real estate deals"
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First National Realty Partners
First National Realty Partners (FNRP) is a commercial real estate private equity firm that focuses on grocery-anchored commercial shopping centers, offering both investments in individual properties and an Opportunity Fund across all of their offerings.
"First National Realty Partners (FNRP) is a rapidly growing commercial real estate private equity firm that owns and operates real estate throughout the United States. FNRP focuses on expanding its portfolio by acquiring market-dominant, well-located commercial assets well below replacement cost. "
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Percent
Percent aggregates private-credit investments from a range of originators offering small-business, crypto, venture loans, litigation finance and more, including international debt investments. Low minimums.
"Percent unlocks exclusive private credit investments for your portfolio. Access select alternative investments on the platform powering the future of private markets."
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