Dragons' Den returned to TV screens last month and millions of viewers are enjoying seeing the latest crop of aspiring entrepreneurs bid for funding to help transform their big idea. But behind the scenes of the hit BBC show, many of the deals the dragons shake hands on don't actually see the light of day.
That’s because multimillionaire investors Peter Jones, Deborah Meaden, Sara Davies, Touker Suliman and Tej Lalvani rightly insist on an intensive period of due diligence before handing over any money. Due diligence is an in-depth investigation of all aspects of a business that is under consideration for investment or purchase, which examines everything from corporate structure to commercial potential, IP ownership and employment contracts. Potential funders will be particularly interested in a business's assets and liabilities when it comes to making a decision about whether to invest.
Here at Harper James Solicitors, our corporate team specialise in due diligence and support ambitious companies who are trying to secure investment that will take their business to the next level.
Stephen Evans, a corporate solicitor who advises on many major transactions each year, said there were three steps businesses approaching due diligence would be wise to follow: 'First, check that any shares have been properly issued to the people who are supposed to own them. Second, make sure that any important IP is vested in your company and not a founder or third party developer. An investor who gets a nasty surprise over the rights to IP might decide it is too complex a problem to solve. And, finally, if there are any important customers which the business has claimed to have, you must put a binding agreement in place and not just a letter of intent or something similar. These are all areas where companies looking to secure investment can sometimes find themselves getting into a mess. Getting legal support can help give you the best chance of ensuring an investor doesn’t end up stepping back and saying "I'm out".'
Callum Giliker, a corporate associate at Harper James Solicitors, added: 'Due diligence can be an intensive process. The investor and the investee may have different perspectives on what is important. To make the process as smooth as possible, an investee would do well to think about what the investor is really looking for to get comfortable with the information, and respond accordingly.
'Something that may not seem important to the investee may actually be of real importance to the investor – and they will only come back with further probing questions if they don’t get satisfactory responses the first time. Thinking about due diligence well in advance is always a good idea. Sometimes a preliminary review can reveal issues which need to be fixed. Flagging these up in advance means the investee has time to fix them before the investor even makes a request.'
For more advice on how our team can support you in getting the investment your business needs, contact us for a consultation.