1. Introduction

Commercial due diligence consulting, also known as commercial due diligence or commercial due diligence, refers to the process of comprehensive, in-depth and objective analysis and evaluation of the target company's business model, market environment, competitive advantage, risk factors, etc. before making investment decisions. The purpose of commercial due diligence consulting is to provide investors with effective information support to help investors judge the value, potential and risk of the target company, so as to make reasonable investment decisions.

Business due diligence consulting is a very important service in the investment field and one of the core businesses of consulting firms. Through its own professional knowledge, experience and methods, consulting companies provide investors with professional business due diligence consulting services to help investors identify and evaluate investment opportunities, avoid and control investment risks, and improve investment returns. The consulting company's business due diligence consulting services cover various industries and fields, including but not limited to technology, media, telecommunications, finance, consumer, medical, energy, manufacturing, real estate, etc., involving various investment types and methods, including but not limited to mergers and acquisitions, private equity, venture capital, equity investment, bond investment, project investment, etc.

However, in the actual process of commercial due diligence consulting, there are often some misunderstandings and risks, which affect the quality and effectiveness of commercial due diligence consulting, and even bring losses and risks to investors and consulting companies. These misunderstandings and risks may come from various factors of investors, target companies, consulting firms or the external environment, and may be caused by information asymmetry, cognitive bias, improper methods, conflicts of interest, legal compliance, professional ethics, etc. Therefore, consulting firms need to pay attention to and avoid these misunderstandings and risks when conducting commercial due diligence consulting, with a view to improving the quality and effectiveness of commercial due diligence consulting, reducing the risks and costs of commercial due diligence consulting, and creating greater value for investors and consulting firms.

From the perspective of consulting firms, this paper summarizes the four common misunderstandings and four risks in business due diligence consulting, namely: information asymmetry misunderstanding, market prediction misunderstanding, competition analysis misunderstanding, business model evaluation misunderstanding, as well as data authenticity risk, legal compliance risk, conflict of interest risk, professional ethics risk. By analyzing the causes, manifestations and harmful consequences of these misunderstandings and risks, this paper puts forward some principles and suggestions that consulting companies should pay attention to and follow in commercial due diligence consulting.

2. CommercialDue diligence consultationthe misunderstanding

1. Information asymmetry misunderstanding

The information asymmetry misunderstanding refers to the situation in which the consulting firm's analysis and evaluation of the target company is biased or distorted due to incomplete, inaccurate, untimely or inconsistent information when conducting commercial due diligence consulting. Information asymmetry misconceptions may arise from the following:

disclosure of the target company. The target company may, for confidentiality, beautification, misleading or other reasons, provide incomplete, inaccurate, untimely or inconsistent information to the consulting company, resulting in the consulting company being unable to obtain the true situation of the target company, or being misled by the information of the target company, thus affecting the results of the commercial due diligence consultation. For example, the target company may conceal or exaggerate its market share, the number of customers, revenue growth, profit margins, technical advantages, competitive advantages and other information, or cover up or downplay its market risk, competitive pressure, legal disputes, financial issues, management issues, technical issues and other information, so that the consulting company can not make a correct judgment on the value and potential of the target company.

Improve the ability of information communication. In the delivery stage of commercial due diligence consulting, consulting companies should improve their information communication ability, effectively present, explain and discuss the consulting results, and use professional skills, language and format to effectively communicate and communicate with investors, so as to ensure that investors can understand and accept the consulting results and provide support for investment decision-making.

Misunderstanding 2: Market Forecast Misunderstanding

Market prediction misunderstanding refers to the situation in which the consulting firm makes unreasonable or inaccurate forecasts of the market size, growth rate, trend, etc. of the target company when conducting commercial due diligence consulting, resulting in the deviation or failure of the consulting results. The main reasons for market forecasting errors are the following:

Ambiguity of market definitions. Market definition refers to the consulting firm's clear definition of the scope, boundaries, and segmentation of the market in which the target company is located. The ambiguity of the market definition means that the consulting firm does not have a clear definition of the market, or the definition of the market is inconsistent with the definition of the target company or investor, resulting in the consulting firm's inability to accurately measure and assess the size, growth rate, trend, etc. of the market.

Lack of market data. Market data refers to the data that consulting firms rely on to quantitatively measure and evaluate the size, growth rate, trend, etc. of the market. The lack of market data means that the consulting firm does not obtain sufficient market data, or the market data obtained is incomplete, untrue, untimely and inconsistent, resulting in the consulting firm's inability to effectively carry out quantitative analysis and evaluation of the market.

The arbitrariness of market forecasts. Market forecasts are the expectations and speculations made by consulting firms about the future development of the market. The arbitrariness of market forecasts means that the consulting firm does not adopt scientific methods and models, or does not take into account the uncertainty and variability of the market, resulting in the consulting firm's forecasts of the market being too subjective, optimistic, conservative or pessimistic and inconsistent with the actual situation of the market.

How can consulting firms avoid market forecasting pitfalls? Here are some possible suggestions:

Clear market definition. The consulting company should fully communicate and negotiate with the target company and investors at the beginning of the commercial due diligence consulting, clarify the definition of the market, including the scope, boundaries, and segmentation of the market, to ensure that the consulting company's understanding of the market is consistent with the target company and investors, and provide a basis for subsequent market analysis and evaluation.

Collect market data. In the process of commercial due diligence consultation, consulting companies should collect market data, including market size, growth rate, trends, etc., obtain complete, true, timely and consistent market data as much as possible, and use a variety of data sources and channels, such as industry reports, market research, data platforms, expert interviews, etc., to provide support for subsequent market analysis and evaluation.

Market forecasting methods are used. The consulting company should adopt market forecasting methods, including quantitative and qualitative market forecasts, and use scientific methods and models, such as trend analysis, regression analysis, Markov chain method, Delphi method, scenario analysis, etc., taking into account the uncertainty and variability of the market, to provide a basis for subsequent market analysis and evaluation.

Misunderstanding three: competition analysis misunderstanding

A competitive analysis misunderstanding is a situation in which a consulting firm conducts an inadequate or inaccurate analysis of the target company's competitors and competitive advantages when conducting commercial due diligence consulting, resulting in a deviation or failure of the consulting results. The main reasons for the misunderstanding of competition analysis are as follows:

Competitor identification is incomplete. Competitors are other companies that provide the same or similar products or services, or meet the same or similar customer needs, in the same market or market segment as the target company. Incomplete identification of competitors means that the consulting firm does not identify all the competitors of the target company, or only focuses on the direct competitors of the target company, ignoring the potential competitors or alternative competitors of the target company, resulting in the consulting firm's inability to fully understand the competitive situation and pressure of the target company.

Competitor analysis is not in-depth. Competitor analysis refers to the consulting firm's in-depth analysis and evaluation of the business model, market performance, competitive advantage, competitive strategy, etc. of the target company's competitors. The lack of in-depth analysis of competitors means that the consulting company does not conduct in-depth analysis and evaluation of the competitors of the target company, or only pays attention to the superficial information of the competitors, ignoring the core capabilities, innovation capabilities, development potential, etc. of the competitors, resulting in the consulting company cannot accurately evaluate the competitive advantages and disadvantages of the target company.

The evaluation of competitive advantage is not objective. Competitive advantage refers to the advantages or differentiation factors that the target company has in the market relative to its competitors, such as product quality, brand awareness, customer loyalty, cost efficiency, technological innovation, channel coverage, etc. The assessment of competitive advantage is not objective, which means that the consulting firm does not make an objective assessment of the competitive advantage of the target company, or exaggerates or belittles the competitive advantage of the target company, ignoring the sustainability, replicability and transformability of the competitive advantage, resulting in the consulting firm's inability to provide investors with effective competitive analysis and advice.

What should consulting firms do to avoid competition analysis pitfalls? Here are some possible suggestions:

Comprehensive identification of competitors. The consulting company should comprehensively identify competitors, including direct competitors, potential competitors and alternative competitors of the target company, at the beginning stage of commercial due diligence consulting, and make use of various data sources and channels, such as industry reports, market research, data platform and expert interviews, to ensure that the consulting company has a comprehensive understanding of the competitors of the target company and provide a basis for subsequent competition analysis and evaluation.

In-depth analysis of competitors. In the process of business due diligence consulting, consulting companies should deeply analyze competitors, including their business models, market performance, competitive advantages, competitive strategies, etc., obtain internal and external information of competitors as much as possible, and use a variety of analysis Methods and tools, such as Porter's Five Forces Model, SWOT analysis, value chain analysis, core competitiveness analysis, etc., provide support for subsequent competition analysis and evaluation.

Objective assessment of competitive advantage. The consulting company should objectively evaluate the competitive advantages at the end stage of the business due diligence consulting, including the advantages or differentiated factors of the target company in the market compared with its competitors, and apply scientific evaluation methods and indicators, such as market share, customer satisfaction, profit rate, cost efficiency, technological innovation, channel coverage, etc., taking into account the sustainability, replicability, and transformability of the competitive advantages, provide a basis for subsequent competitive analysis and recommendations.

Myth 4: Business Model Assessment Misunderstandings

Business model assessment misconceptions are situations in which a consulting firm makes an inadequate or inaccurate assessment of the target company's business model when conducting a business due diligence consultation, resulting in a deviation or invalidation of the results of the consultation. The main reasons for business model assessment errors are the following:

The business model is not clearly understood. Business model refers to the logic of how the target company creates, delivers and captures value, including the target company's value proposition, customer segmentation, channels, revenue streams, cost structure, key resources, key activities, key partners, etc. The unclear understanding of the business model means that the consulting firm does not have a clear understanding of the target company's business model, or the understanding of the business model is inconsistent with the understanding of the target company or investors, resulting in the consulting firm's inability to accurately assess the target company's business status and potential.

The analysis of business models is not systematic. Business model analysis refers to the systematic analysis and evaluation of the various elements of the target company's business model by the consulting firm. The unsystematic analysis of the business model means that the consulting company does not systematically analyze and evaluate the various elements of the business model of the target company, or only pays attention to some elements of the business model, ignoring the integrity, consistency and synergy of the business model, which leads to the consulting company's inability to effectively evaluate the advantages and disadvantages and risks of the business model of the target company.

The assessment of the business model is incomplete. Business model assessment refers to the consulting firm's comprehensive assessment of the target company's business model, including the feasibility, sustainability, scalability, and transformability of the target company's business model. The incomplete evaluation of the business model means that the consulting company does not conduct a comprehensive evaluation of the business model of the target company, or only pays attention to some aspects of the business model, ignoring the multi-dimensional, dynamic and complex nature of the business model, resulting in the consulting company's inability to provide investors with effective business model analysis and recommendations.

How can consulting firms avoid business model evaluation pitfalls? Here are some possible suggestions:

A clear understanding of the business model. The consulting company should fully communicate and negotiate with the target company and investors at the beginning stage of the business due diligence consultation, and clearly understand the business model of the target company, including the value proposition, customer segmentation, channels, income streams, cost structure, key resources, key activities, key partners, etc., to ensure that the consulting company's understanding of the business model is consistent with that of the target company and investors, provide a basis for subsequent business model analysis and evaluation.

Systematic analysis of business models. In the process of business due diligence consulting, consulting companies should systematically analyze the business model, including the analysis and evaluation of various elements of the business model, and use a variety of analysis methods and tools, such as business model canvas, value proposition canvas, business model evaluation matrix, business model innovation methods, etc., to provide support for subsequent business model analysis and evaluation.

Comprehensive evaluation of business models. The consulting company should comprehensively evaluate the business model at the end of the business due diligence consultation, including the feasibility, sustainability, scalability, and transformability of the business model, and use scientific evaluation methods and indicators, such as business model evaluation matrix, Business model maturity model, business model change index, etc., taking into account the multi-dimensional, dynamic, and complex nature of the business model, to provide a basis for subsequent business model analysis and recommendations.

Case Analysis of 3. Shangpu Consulting Company

Shangpu Consulting Company (ShangpuConsulting) is a consulting company specializing in business due diligence consulting. It was established in 2018 and is headquartered in Beijing. It has a team of industry experts, market analysts, data scientists, business model designers, etc. The high-quality consulting team provides investors with professional, efficient and high-quality business due diligence consulting services. Shangpu Consulting has rich experience and good reputation in the field of commercial due diligence consulting. It has provided successful commercial due diligence consulting services to investors in many industries and fields. The following are some specific cases of Shangpu Consulting:

Case 1: For a well-known private equity fund to provide a new energy vehicle manufacturer with commercial due diligence consulting services, to help investors fully understand the target company's business model, market environment, competitive advantage, risk factors, etc., for investors Investment decision-making provides effective information support and decision-making reference. In this case, Shangpu Consulting Company avoids the misunderstanding of information asymmetry. Through good communication and trust relationship with the target company and investors, it obtains complete, true and timely information of the target company. At the same time, it collects internal and external information of the target company from multiple angles and levels by using its own industry knowledge, market experience, data sources, network resources, etc, the collected information is effectively collated, analyzed and verified, and comprehensive, in-depth and objective consultation results are provided.

Case 2: For a well-known venture capital fund to provide commercial due diligence consulting services on an online education platform, to help investors in-depth understanding of the target company's market size, growth rate, trends, etc., for investors to provide effective reference and advice for investment decisions. In this case, Champu Consulting avoided market forecasting pitfalls, collected sufficient market data through a clear market definition, adopted scientific market forecasting methods and models, took into account market uncertainty and variability, and provided reasonable and accurate market forecasting results.

Case 3: A well-known strategic investment fund provided commercial due diligence consulting services to a smart home equipment manufacturer, helping investors to fully understand the target company's competitors and competitive advantages, and providing effective investment decisions for investors Guarantee and support. In this case, Shangpu Consulting Company avoided the misunderstanding of competition analysis. Through comprehensive identification of competitors, in-depth analysis of competitors, objective evaluation of competitive advantages, and use of a variety of analysis methods and tools, such as Porter's Five Forces Model, SWOT analysis, Value chain analysis, core competitiveness analysis, etc., provided effective and valuable competition analysis and suggestions.

Case 4: Providing a well-known M & A investment fund with commercial due diligence consulting services on an e-commerce platform, helping investors gain an in-depth understanding of the target company's business model and providing an effective basis and support for investors' investment decisions. In this case, Shangpu Consulting Company avoided the misunderstanding of business model evaluation. It provided effective and valuable business model analysis and suggestions by clearly understanding the business model, systematically analyzing the business model, comprehensively evaluating the business model, and using a variety of analysis methods and tools, such as business model canvas, value proposition canvas, business model evaluation matrix, business model innovation methods, etc.

The above are some specific cases of Shangpu Consulting Company. It can be seen that Shangpu Consulting Company has rich experience and good reputation in the field of business due diligence consulting, and can provide investors with professional, efficient and high-quality business due diligence Consulting services to help investors make correct investment decisions.