Deepak Bhawnani, Founder & CEO, Alea Consulting

Deepak established Alea Consulting in 2003 as India’s first private global risk consulting firm, after spending almost 16 years at a US organisation. In a career spanning over 30 years, Deepak has conducted numerous high-profile assignments & investigations, building a reputation as an industry advocate and thought leader. He is recognized for his expertise in directing assignments of FCPA/fraud investigations, and international asset discovery, besides litigation support and crisis consulting across South Asia, South-East Asia, USA and Europe. He is a member of ASIS, ACFE, BBG, ICBC and a sought-after speaker delivering addresses to financial institutions in exclusive Asia-based seminars.


Investment in an entrepreneur with a great idea enables the start-up to initiate the process of becoming a unicorn. Screening ideas in order to choose one that satisfies the investors criteria remains a critical internal process.

Since the human element is crucial for a successful collaboration, investors prefer to collaborate with individuals they assess to be the best fit in terms of vision and personality. However, relying solely on the promoter’s idea and personality is insufficient. Investors need to be confident of the start-ups management, existing corporate talents, and available and projected track record.

Investors spend a considerable number of hours to research every facet of a start-up or small business. They wish to be confident in their selection before they release funds. During such a process, business overheads, product-market fit, management limitations and concerns, lack of reserves, etc. need to be pre-assessed. It is necessary to finalise legal paperwork and most importantly conduct due diligence. 

Start-ups are seen as being at seed-stage funding with a limited ticket size. Therefore, the depth of due diligence is customised in accordance with the profile of the entrepreneur.

This article aims to provide a few fundamentals of the procedures involved in conducting integrity due diligence so they may choose whether to invest with a promoter or not.

Need for Integrity Due Diligence

Integrity Due diligence has a relatively short timeframe which mirrors the term-sheet period – usually thirty to sixty days, but it is an essential aspect of evaluating the risks of a proposed transaction. It allows the prospective investor to get clarity and insights and assists in making informed decisions during the transaction process.

Potential risks related to corporate governance, legal, and environmental compliances are detected during this stage of the investment process. Not identifying such risks can have long-term consequences and have a significant impact on the RoI.

The due diligence process differs as there is no established standard. The business model or technical USP or growth prospects may have a different weightage for an investor.

Integrity Due Diligence – a Multi-Step Process

A start-up integrity due diligence is a multi-step process that ensures a thorough investigation. Some of the areas covered include:

  • Examining the entrepreneurs history, background, lifestyle, other direct/indirect business interests
  • Social status and professional networking 
  • Evaluation of the entity and its business model
  • Reputation, perception and level of involvement in the start-up
  • Negative/adverse information 
  • AML, Bribery or Corruption issues 
  • Regulatory Compliance checks
  • International Sanctions and Blacklists 
  • Law Enforcement issues
  • Timely corporate filings 
  • Financial liens and delinquencies
  • Source of funds 
  • Civil & Criminal Litigation

Other concurrent due diligence to be initiated, by separate entities to ensure no conflict of interest, are the Legal and Financial due diligence. Maintaining these in a secure data room saves time and effort, and minimises overlooking relevant documents, details, and reviews.

These may include:

  • Minutes of Directors and Shareholder meetings
  • List of the trademarks, patents, copyrights, and domain names 
  • Similar information subsidiaries, if any
  • Business plan and financial projections
  • Latest Financial statements
  • Profit & Loss statements
  • Annual Budgets
  • Any Licensing or franchise agreements
  • Comprehensive shareholders List
  • Option holders list
  • Agreements relating to outstanding options, warrants, rights
  • Agreements for purchase or acquisition of any of the Company’s securities
  • Any other commitments in relation to the company/group ownership
  • Association and dependence on outside vendors/suppliers/consultants

ESG – Governance Reviews

ESG reviews assess the start-ups environment, social and governance practices, and sustainability. Given the entity is likely to be recently formed, the G of ESG i.e., Governance remains a priority. While there is no “one size fits all” strategy for ESG due diligence, each business model has a unique impact. 

IP Due Diligence

IP due diligence is simply an audit to evaluate the quantity and quality of intellectual property assets of a firm. It provides an evaluation of how the investee records and safeguards intellectual property, such as trademarks and patents. For technology-heavy entities, IP due diligence would be a key criterion.

Risk Mitigation

All investments carry a high degree of risk, but investors can mitigate risks by using a structured approach to completing relevant due diligence processes. As a result, entrepreneurs can bring their best ideas to fruition!

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