Due Diligence in Private Equity

In private equity (PE) financing the selection of the right investee firms is essential to minimize adverse selection problems and post-acquisition complications, as well as increase the chances of success of the entire venture (Cumming and Zambelli, 2017). The purpose of this paper is to provide an overview of the decision-making process implemented by PE investors (hereafter venture capitalists, or VCs) when financing high-growth potential firms. To this end, a special focus will be placed on the crucial importance of implementing a thorough evaluation —known as due diligence (DD)— of potential target firms and prospective investments to enhance the the overall success of the venture (Cumming and Zambelli, 2017).