Due diligence is the investigation process before committing capital. For crowdfunding investments, thorough due diligence covers the platform, project, and legal structure.
Platform Due Diligence
Regulatory Status
- ☐ Verify regulatory license
- ☐ Check license scope
- ☐ Confirm good standing
- ☐ Review compliance history
Track Record
- ☐ Years in operation
- ☐ Number of projects completed
- ☐ Historical returns achieved
- ☐ Problem resolution examples
Team
- ☐ Management backgrounds
- ☐ Relevant experience
- ☐ Professional qualifications
- ☐ Industry reputation
Transparency
- ☐ Communication quality
- ☐ Reporting frequency
- ☐ Information accessibility
- ☐ Responsiveness
Project Due Diligence
Property
- ☐ Location verification
- ☐ Property condition
- ☐ Title deed status
- ☐ Comparable analysis
Financials
- ☐ Purchase price justification
- ☐ Renovation budget review
- ☐ Holding cost estimates
- ☐ Exit price assumptions
Timeline
- ☐ Realistic schedule
- ☐ Milestone definitions
- ☐ Contingency planning
- ☐ Exit timeline
Risks
- ☐ Risk factors identified
- ☐ Mitigation strategies
- ☐ Worst-case scenarios
- ☐ Stress testing
Legal Structure Due Diligence
SPV
- ☐ Properly formed
- ☐ Jurisdiction appropriate
- ☐ Governance defined
- ☐ Title in SPV name
Agreements
- ☐ Shareholder agreement review
- ☐ Distribution waterfall clear
- ☐ Exit mechanisms defined
- ☐ Voting rights understood
Investor Rights
- ☐ Information rights
- ☐ Voting rights
- ☐ Transfer rights
- ☐ Exit rights
Financial Due Diligence
Fee Structure
- ☐ All fees disclosed
- ☐ Fee calculation clear
- ☐ Comparison to market
- ☐ Impact on returns
Return Projections
- ☐ Assumptions stated
- ☐ Realistic expectations
- ☐ Historical comparison
- ☐ Risk-adjusted view
Capital Protection
- ☐ Margin buffer exists
- ☐ No leverage (if stated)
- ☐ Escrow arrangements
- ☐ Insurance coverage
Red Flags
Avoid If
- ☐ Guaranteed returns promised
- ☐ Pressure to invest quickly
- ☐ Vague or missing information
- ☐ Unverifiable claims
- ☐ Unlicensed platform
- ☐ Hidden fees
- ☐ No track record
- ☐ Defensive responses
Information Sources
Platform Provided
- Offering documents
- Project details
- Legal agreements
- Historical data
Independent
- Regulatory registers
- Online research
- Industry sources
- Professional advisors
Professional Support
Consider Engaging
- Legal review for large investments
- Financial advisor consultation
- Tax professional advice
- Industry expert opinion
Decision Framework
After Due Diligence
- Do I understand the investment?
- Are risks acceptable?
- Is the operator credible?
- Does structure protect me?
- Are returns realistic?
- Does it fit my portfolio?
If Any Doubt
- Ask more questions
- Seek clarification
- Consider alternatives
- Don't invest if uncomfortable
Conclusion
Thorough due diligence:
- Protects capital
- Enables informed decisions
- Identifies red flags
- Builds confidence
Never skip due diligence regardless of opportunity attractiveness.
