Due Diligence Explained: How to Check an Investment Project
By Rodion Sultanshin
Investors often hear the phrase due diligence, and it sounds complicated. In reality it is simple: it is a comprehensive check of a project before a deal. In this article we explain what due diligence is, what types of checks exist, and who carries them out and when. A practical, step-by-step procedure with specific questions is gathered in our project due-diligence checklist.
What is due diligence
Due diligence, from the English, means proper care. In essence it is a thorough check of a project or company before investing money. The goal is not to find the perfect project, but to see the real picture: where the risks are, how manageable they are, and whether the potential return is adequate to that risk. Put simply, it is a way to make a decision consciously, rather than on emotions and promises.
What types of checks exist
Several areas are usually distinguished. Legal review looks at the legal entity, ownership rights, documents, owners and possible disputes. Financial review examines the reporting, the financial model, debts and real cash flows. Commercial, or market, review assesses demand, the market and competitors. Tax review checks taxes and related risks. In practice these areas overlap, and the depth of each depends on the project and the deal size.
Who carries out due diligence
An investor can do the basic check themselves, especially for small amounts: request documents, study the financial model, check the legal entity and the market. For large and complex deals, specialists are brought in: lawyers, financiers, appraisers. That is the point of professional support: you pay so that other people’s mistakes do not become yours. How to start on your own is described in the checklist.
When a check is needed
Always before a deal. The only difference is the depth: the larger the amount and the more complex the project, the more thorough the check. But even at an early stage and with a small investment, a basic minimum is mandatory. Skipping the check for the sake of speed is a common and costly mistake.
How much it costs and how long it takes
A self-check costs you time; a professional one requires a budget but protects against far greater losses. The timeframe also depends on the scale: from a few days for a simple project to several weeks for a complex one. A specific estimate is given after an initial review of the project.
How due diligence differs from simply “looking at a project”
The key difference is its systematic nature. It is not a cursory glance or taking things on trust, but checking claims against documents and facts along a clear list of areas. A well-prepared founder is usually happy to show the figures and agreements, while evasiveness and haste are already a warning sign.
It is a thorough check of a project before a deal: documents, finances, the market and the legal side. The goal is to see the real risks and make an informed decision.
What types of due diligence are there?
Most often legal, financial, commercial and tax. In practice they overlap, and the depth depends on the project and the amount.
Who carries out the check?
The investor can do the basic one themselves; for large deals, lawyers and financiers are brought in. A professional check reduces the risk of costly mistakes.
How much does due diligence cost?
A self-check costs time; a professional one requires a budget and depends on the scale of the project. An exact estimate is given after an initial review.
Is a check needed for small amounts?
Yes. The depth can be reduced, but a basic minimum is always mandatory. Skipping the check for the sake of speed is a common mistake.
