Due diligence

What Are the Top 25 Due Diligence Questions to Ask Before Investing?

Short answer. Ask questions that test the people, the numbers, the terms and the market, along with the protections around your capital. Request records that support the answers, build a downside case and identify what would make you walk away. In the first meeting, focus on track record, risks, valuation and conflicts. Ask what the sponsor will not provide.

By Richard C. Wilson, founder of the Family Office Club

Before investing, ask how you could lose money and what evidence supports the deal. A polished presentation, trusted introduction or another investor's interest does not verify a claim. Request records, compare them with the story and investigate gaps. A red flag calls for closer review; a refusal to support a material claim deserves serious attention.

Use these questions to guide the conversation and organize follow-up work. For legal or tax specifics, consult your attorney or CPA. Bring in specialists familiar with the investment type when the records or operating details call for it.

Management

  1. "Can you show the full track record, including realized losses, and identify who made each decision?" Cherry-picked wins or unrealized gains presented as realized results can distort the record.
  2. "Have you or the principals faced litigation, bankruptcy, regulatory action or material disputes?" Missing details or inconsistent accounts may point to unresolved conduct or disclosure issues.
  3. "How much of your own capital is invested, and is it on the same terms as mine?" A small, senior or protected stake may weaken alignment.
  4. "May I speak privately with people I identify, including investors or counterparties?" A list limited to hand-picked references can conceal difficult experiences.
  5. "What happens to the investment if a key person leaves, becomes unavailable or changes roles?" Heavy dependence on one person without a workable successor plan creates continuity risk.

Financials

  1. "Can we reconcile revenue and EBITDA, then trace cash to bank records, tax filings and underlying contracts?" Numbers that cannot be tied to independent records may be incomplete or misstated.
  2. "What is the cash runway, what additional capital is needed, and when might it be needed?" A vague funding plan can lead to an unexpected capital call or rushed financing.
  3. "What share of revenue comes from the largest customers, and how long are those relationships committed?" Concentration can turn one lost customer into a major shortfall.
  4. "What happens to cash and debt service if revenue falls 20 percent or an exit is delayed?" A plan that works only in the base case may fail under ordinary setbacks.
  5. "What debt, guarantees, liens, leases or other obligations sit outside the headline numbers?" Undisclosed claims on cash or assets can weaken your recovery.

Deal Economics

  1. "How was the valuation set, and what comparable transactions support it?" A price based on selective or poor comparables can leave little room for error.
  2. "What are my expected net IRR and multiple on invested capital after fees and expenses? How could dilution affect them?" Gross returns can overstate what reaches you.
  3. "How do management fees, carried interest, preferred return, catch-up and the distribution waterfall work?" Unclear calculations can shift proceeds away from investors.
  4. "What liquidation preference and anti-dilution terms apply? What voting rights do I have, and how could future financing affect them?" Weak protections may leave your stake diluted or behind other claims.
  5. "What is a realistic route to liquidity, who could buy, and what if no buyer appears?" An exit plan that depends on one buyer or a fixed date may not be achievable.

Market

  1. "What independent evidence shows customers will pay, renew or expand their purchases?" Interest, pilots or forecasts without actual buying behavior can overstate demand.
  2. "What prevents a competitor from copying the product, service or distribution model?" A claimed advantage without evidence may disappear as the market changes.
  3. "How do unit economics change as sales and staffing grow? How do operating costs change?" Attractive early economics may weaken when the business tries to scale.
  4. "Which assumptions must be true for this plan to work, and what evidence would disprove each one?" If the assumptions cannot be tested, the thesis may be hard to challenge before losses grow.
  5. "What outside event could permanently impair the business, and how exposed are we to it?" A plan with no credible response to a major external shock may have a fragile downside case.

Governance

  1. "What related-party transactions, conflicts, referral payments or side letters exist?" Undisclosed benefits can influence how money and opportunities are allocated.
  2. "Who audits the accounts, values assets and controls cash transfers?" Weak separation of duties or unsupported valuations can hide errors or misuse.
  3. "What legal, tax, regulatory, cyber or intellectual property issues could affect the investment?" Unexamined liabilities can bring costs, restrictions or loss of core assets.
  4. "What rights do investors have if management underperforms or breaches the agreed process?" Rights that are vague or difficult to use may offer little protection in a dispute.
  5. "What information are you unwilling to provide, and why?" A refusal without a clear, supportable reason can leave a material risk unanswered.

The Seven Questions to Ask in the First Meeting

Time is limited in an initial conversation. Start with questions that can quickly expose gaps in the people, the downside, the price and the sponsor's openness:

Those answers are a starting point. Follow up with documents and independent checks. For a manager's track record, see how to verify reported fund performance. For company financials, review how to check portfolio company financial statements. Ask what investor protections to negotiate before funding, and examine related-party transaction disclosures.

The Question That Sums It Up

Ask: "What is the most realistic way we could lose most or all of our money, and what evidence says it is unlikely?" Listen for a specific path to loss, then ask to see the records, contract terms, customer evidence or operating plan behind the answer. If a claim matters to your decision, get it in a form you can check.

In my experience, the ability to walk away matters even late in the process. The Family Office Club has hosted 340 events since 2007, and relationships can create access to opportunities, but access is not evidence. Keep a written list of open questions and the records needed to close them. Explore how family offices conduct due diligence and what to inspect before buying a private company stake.

Many of the best-performing family offices that I have met credit their willingness to walk away from a deal, even at this late stage, as a big reason why they have been successful.

Richard C. Wilson, The Single Family Office

Sources: The Single Family Office. Informational only, not financial, legal or tax advice.