Venture Capital Due Diligence: Minimising risk in investments

Minimising Risk in Investments
Written by León Lanis, Paralegal

Venture capital (or VC) is one of the most profitable and desired markets of the moment for well established companies to broaden their investments and help inject capital. Although it may sound contradictory, there are many ways a company may minimise the risk in such operations. The investor may be able to precise the amount of voluntary risk it is willing to assume, while discarding those companies which pose a threat to the investment due to many factors that may mark them as higher risk.

In this article, we will dive into the steps for gathering information in order to secure investments in other companies while maximising the possible gains of said operations.

First Step: Screening

This is the first step in order to get to know companies that may be interested in receiving funding. It is important to create a set of criteria in order to scope the companies you are interested in investing in.

Most companies try to set the scope first in the amount of capital (money, help, mentoring, etc) that they are willing to invest, then certain requirements for the companies in order to apply (like time operating, amount of clients, certain businesses you are interested in, amongst others). This will help scope the investment and let the companies know whether they are suitable or not for the business proposal.

Screening usually comes as a public offer for investment or a specific offer in an event or similar occasions. It is important to have enough legal disclaimers in said offers in order to exonerate yourself from responsibilities and reserving the right to refuse a proposal.

Second step: Business due diligence

This is more of a review of the company’s results in order to understand if either they are worthy of such investments or to know if they really need capital in order to grow. This is a key due diligence step, as it will let you understand if the company is capable of escalating the business and if that is possible through the capital fuelling. Usually business diligence comes by way of interviews, documents, tax records, etc.

Third step: Legal due diligence

This is the last step of diligence needed to narrow the possible companies that you may invest in. The legal diligence consists of different scopes: regulatory risk, tax implications, legal status of a company, etc. This mainly will focus on the future of a company’s operations from a legal perspective (maybe a business will need future licences and requirements or have high-risk legal factors).

The basic steps for legal diligence will be understanding the legal status of the company: is it incorporated? Which type of company is it? How does it limit the liabilities? These are some of the basic questions needed to secure an investment.

A successful legal diligence in the venture capital market needs to have eyes and ears in the future. It means understanding the possible evolution of regulation through time in different markets, something specifically needed for emerging technologies.


Venture capital is a great way to diversify your investments while maximising the gain. It is an emerging market with a lot of potential, but there are techniques and procedures to follow if you want to minimise the risk of said investments. It is important to keep in mind the three steps of due diligence: screening, business and legal, in order to secure good investment opportunities.

Harris Gomez Group opened its doors in 1997 as an Australian legal and commercial firm. In 2001, we expanded our practice to the international market with the establishment of our office in Santiago, Chile. This international expansion meant that as an English speaking law firm we could provide an essential bridge for Australian companies with interests and activities in Latin America, and to provide legal advice in Chile, Peru and the rest of Latin America. In opening this office, HGG became the first Australian law firm with an office in Latin America.
As Legal and Commercial Advisors, we partner with innovative businesses in resources, technology and sustainability by providing strategy, legal and corporate services. Our goal is to see innovative businesses establish and thrive in Latin America and Australia. We are proud members of Austmine and the Australia Latin American Business Council.
To better understand how we can support your management team in the Region, please contact 

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