Due Diligence (Due Diligence, shortDD) is a comprehensive and in-depth review of the target company or project by commercial investors before making investment decisions to assess its value and risk and provide a basis for investment decisions. Due diligence is an essential part of equity investment, M & A transactions, project investment and other activities, and it is also a key factor in the success of investment. However, due diligence is not an easy task. Investors need to master certain methods and skills to effectively conduct due diligence, discover the advantages and disadvantages of the target company or project, avoid or reduce investment risks, and improve investment returns. This article will introduce the following ten aspects of commercial investors in due diligence should pay attention to the tips, I hope to help readers.

Clarify the purpose and scope of due diligence. Before conducting due diligence, the purpose and scope of due diligence should be clarified, that is, the following three questions should be answered: why should due diligence be carried out? What aspects of due diligence should be carried out? What kind of effect should be achieved? Clarifying the purpose and scope of due diligence will help to formulate a reasonable due diligence plan and avoid blindness and waste. For example, if the investor's purpose is to acquire all or part of the target company's equity, then it is necessary to conduct a comprehensive and in-depth due diligence on the financial, legal, business, and technical aspects of the target company to assess the value and risks of the target company and discover Potential problems and opportunities; if the investor's purpose is to conduct strategic cooperation or alliance with the target company, then it is necessary to focus on the strategic planning, core competitiveness, market position and other aspects of the target company to determine the willingness and conditions of cooperation, design cooperation models and programs.

Develop due diligence plans and arrangements. Once the purpose and scope of due diligence have been defined, specific due diligence plans and arrangements need to be developed, I .e., to answer the following three questions: who will do due diligence, how? and when? The development of due diligence plans and arrangements will help to implement effective due diligence and ensure quality and efficiency. For example, if investors need to conduct due diligence on the target company in many aspects, then they need to form a due diligence team composed of professionals or third-party institutions, and clarify their respective division of labor and responsibilities; if investors need to conduct in-depth and detailed due diligence on the target company, then they need to use a variety of methods and tools to conduct due diligence, such as document review, data analysis, interviews, field visits, etc, and use data rooms, questionnaires, reports, etc. to record and present the results, and if investors need to complete the adjustment within a limited time, then they need to make a reasonable schedule and schedule, and communicate with the target company.

Perform due diligence and verify information. After making the due diligence plan and arrangement, it is necessary to carry out specific due diligence work according to the plan and verify the authenticity and reliability of the collected information, that is, to answer the following three questions: what information to collect? What information to verify? What questions to analyze?

Performing due diligence and validating information helps to collect valid data and information to support subsequent decision-making. For example, if investors need to make due diligence on the financial status of the target company, they need to collect the financial statements, audit reports, tax certificates and other information provided by the target company, and confirm or consult with relevant departments or institutions to verify the authenticity and accuracy of the financial data; if investors need to make due diligence on the legal risks of the target company, then it is necessary to collect the contract documents, certificates and licenses, litigation arbitration and other materials provided by the target company, and conduct cross-verification or logical verification to find legal problems and risks; if investors need to adjust the business model of the target company, then it is necessary to collect the market research, customer feedback, competition analysis and other materials provided by the target company, and conduct sensitivity analysis or hypothesis test, to assess the viability and benefits of the business model.

Writing due diligence reports and making recommendations. After completing the due diligence work and verifying the information, a detailed due diligence report should be written according to the due diligence results, and reasonable suggestions and schemes should be put forward, that is, the following three questions should be answered: what are the contents of the report? What principles are followed in the report? What objectives are achieved in the report?

Writing due diligence reports and making recommendations helps to collate valid data and information and provide a basis for subsequent communication. For example, if investors need to conduct a comprehensive and in-depth due diligence on the target company, they need to write a due diligence report including summary, catalogue, main body, attachments and other parts, and divide it into chapters according to financial, legal, business, technical and other aspects. Each chapter includes background introduction, method description, result presentation, problem discovery, suggestion proposal and other contents; if investors need to focus on the target company, they need to write a due diligence report that follows the principles of objectivity, accuracy, completeness and clarity, and use standardized, unified and professional language and terminology, use charts, pictures, tables and other auxiliary tools, and use citations, annotations, references and other labeling methods; if investors need to conduct strategic cooperation or alliance with the target company, they need to write a due diligence report that reflects the real situation and problems of the company, evaluates the value and risks of the company, makes reasonable suggestions and solutions, and provides a basis and reference for investment decisions.

Communicate feedback and negotiate conditions. After writing the due diligence report and putting forward suggestions, it is necessary to communicate and feedback with the target company and other relevant parties, and negotiate the investment conditions and terms, that is, to answer the following three questions: who to communicate with? How to communicate? What to communicate?

Communication, due diligence, feedback and negotiation conditions help to eliminate misunderstandings and doubts and lay the foundation for subsequent cooperation. For example, if investors need to make equity investment or debt investment with the target company, they need to communicate with senior managers, core employees and shareholder representatives of the target company, and adopt a friendly, honest and respectful attitude in written or oral form, in formal or informal occasions, to introduce the main contents and conclusions of the due diligence report to them, and listen to their opinions and feedback, answer their questions and concerns, and negotiate the investment amount, proportion, term, income, risk and other conditions and terms; if investors need to carry out strategic cooperation or alliance with the target company, they need to communicate with the strategic decision makers, business leaders and partners of the target company, and adopt the form of demonstration or discussion, and adopt an open, innovative and cooperative attitude in formal or informal occasions, show them the main contents and recommendations of the due diligence report, solicit their opinions and suggestions, discuss cooperation models and programs, and negotiate the scope, methods, duration, benefits, risks and other conditions and terms of cooperation.

Adjust the due diligence results and optimization scheme. After communicating the feedback and negotiating the conditions, it is necessary to make necessary adjustments and optimizations to the results of the due diligence according to the results of the communication and the situation of the negotiation, and to make necessary modifications and improvements to the investment plan, that is, to answer the following three questions: why to adjust? How to adjust? What to adjust?

Adjusting the results and optimizing the plan helps to adapt to the changing environment and needs, and provides guarantee for the subsequent implementation. For example, if the investor finds that the target company has major changes or events in the due diligence process, such as performance fluctuations, market changes, management changes, etc., then it is necessary to reevaluate the due diligence results and make corresponding adjustments to the investment plan; if the investor finds that the target company has different expectations or requirements for investment conditions or cooperation terms during the negotiation, for example, if the amount increases, the proportion decreases, and the term extends, then the due diligence results need to be re-analyzed and the investment plan optimized accordingly.

Signing of due diligence agreements and investment contracts. After adjusting the due diligence results and optimizing the scheme, it is necessary to sign a formal due diligence agreement and investment contract with the target company and other relevant parties, and perform the corresponding obligations and responsibilities according to the contract, that is, to answer the following three questions: what to sign? How to sign? How to do after signing?

The signing of due diligence agreements and investment contracts helps to protect the rights and interests of all parties and provides a basis for subsequent supervision. For example, if the investor makes equity investment or debt investment with the target company, it is necessary to sign a due diligence agreement and investment contract including due diligence agreement, investment agreement, equity transfer agreement, debt transfer agreement, etc., and pay investment funds, receive equity or debt, participate in management or supervision, etc. according to the contract; if the investor makes strategic cooperation or alliance with the target company, then it is necessary to sign due diligence agreements and investment contracts that include due diligence agreements, cooperation agreements, alliance agreements, etc., and to provide resources or services, share benefits or risks, establish mechanisms or platforms, etc. in accordance with the contract.

Monitor due diligence implementation and investment effectiveness. After the signing of the due diligence agreement and investment contract, it is necessary to carry out continuous supervision and evaluation of the due diligence implementation and investment effect, and make necessary improvements and improvements to the due diligence work and investment program according to the results of the supervision and evaluation, that is, to answer the following three questions: what to supervise? How to supervise? What to do after supervision?

Monitoring implementation and investment effectiveness can help identify problems and pitfalls and provide feedback for subsequent improvements. For example, if the investor makes equity investment or debt investment with the target company, it is necessary to carry out regular or irregular supervision and evaluation on the financial situation, legal risk, business development, technological innovation and other aspects of the target company, and make necessary amendments or termination to the investment plan according to the results of supervision and evaluation; if the investor makes strategic cooperation or alliance with the target company, then it is necessary to carry out continuous or phased supervision and evaluation of the progress, effect evaluation, problem solving and risk control of the cooperation project, and make necessary adjustments or withdrawal of the cooperation program according to the results of supervision and evaluation.

Learning due diligence experiences and lessons. After monitoring the implementation of due diligence and investment effects, we should summarize and summarize the experience and lessons learned in the process of due diligence, and according to the results of the summary and induction, we should learn and improve the methods and techniques of due diligence, that is, we should answer the following three questions: what to summarize? How to summarize? What to do after summarizing?

Learning due diligence experience and lessons will help improve the ability and level of due diligence, and provide reference for subsequent due diligence. For example, if investors find that they have deficiencies or errors in some aspects in the process of due diligence, such as incomplete information collection, inaccurate data analysis, and untimely problem discovery, then they need to reflect and summarize these aspects, and according to the results of the summary, to learn and improve their own due diligence methods and skills; if investors have achieved some success or advantages in the due diligence process, such as effective information collection, accurate data analysis, timely problem discovery, etc., then they need to understand and summarize these aspects, and according to the results of induction, their own due diligence methods and techniques to carry out the necessary replication and promotion.

Innovative ideas and models. After learning the experience and lessons of due diligence, we should make innovations and breakthroughs in the ideas and models of due diligence, and make necessary optimizations and improvements to the due diligence work and investment programs based on the results of innovations and breakthroughs, that is, we should answer the following three questions: what to innovate? How to innovate? What to do after innovation?

Innovative due diligence ideas and models help to enhance the effectiveness and value of due diligence and provide guidance for subsequent due diligence. For example, if investors find some special or complex situations in the target company or project in the process of due diligence, such as cross-border or cross-industry operation, diversified or mixed business, high or rapid changes, etc., then it is necessary to innovate and break through the due diligence ideas and models, and make necessary optimization and improvement of the due diligence work and investment plan according to the results of innovation and breakthrough; if investors find that they have some unique or advantageous resources or abilities in the process of due diligence, such as professional or authoritative knowledge or experience, powerful or flexible network or platform, advanced or innovative technology or tools, etc., then they need to innovate and break through the due diligence ideas and models, and according to the results of innovation and breakthrough, necessary optimization and improvement of due diligence and investment programmes.

These are the ten tips that commercial investors should pay attention to when conducting due diligence, which I hope will be helpful to readers. Of course, these tips are not fixed, but need to be flexibly applied and appropriately adjusted according to different investment objectives, objects, environment and other factors. At the same time, these tips are not complete, but need to be continuously improved and perfected according to the process of continuous practice, learning and innovation. In short, due diligence is an art and a science, and it is not difficult for commercial investors to continuously explore, practice, summarize, and improve in order to truly achieve due diligence.