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Impact Investment: A Practical Guide to Investment Process and Social Impact Analysis by Keith A. Allman

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CHAPTER 4

Due Diligence and Investment Structuring

The due diligence phase of the impact investing process signifies a serious commitment toward investment. Both parties will have to expend time and financial resources to make the due diligence effective and meaningful. From an investor perspective, the company, its market, and its business operations will undergo intense scrutiny. Management meetings will become commonplace, interaction will occur with employees at various levels and departments, data will be requested and vetted, the operations will be observed onsite under various conditions, validation of both financial and social performance data presented earlier will ensue, and research will take place on competitive companies. The investors seek to solidify their opinion on management and validate their investment thesis. Additionally, the business drivers that led to the pre–due diligence valuation will be revisited and tested, and any risks found will be incorporated into the analysis. Possible advanced investment structures might be necessary to help mitigate concerns that arise out of the due diligence.

DUE DILIGENCE

The goal of an investor completing a due diligence is to thoroughly vet the company so that the investor is comfortable finalizing the investment. The due diligence that we are referring to should be more specifically referred to as the operational and business due diligence. The distinction is made because there are other forms of due diligence—namely, ...

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