Utilizing DEI&B Due Diligence

WHEN & HOW TO UTILIZE DEI&B DDQ

VENTURE CAPITAL FIRMS AND BOARD OF DIRECTORS

The first question that will inevitably arise is when it would be prudent for a VC lead or co-lead to introduce DEI&B as a component of the term sheet negotiation process. For venture creation funds that seed a company, the answer may be different based on the nature of the transaction(s) – take for example SAFE-funded academic founders with inlicensed technology from an institution. Nevertheless, Exhibit A (below) provides a roadmap that may be helpful tool for both such incubated companies, and biotech/biopharma targets of traditional VCs, and the resources in this document (e.g. the DEI&B Policy and the BIIG Startup Toolkit) may be implemented even at the seed stage and help guide the companies’ HR practices at inception. 

Although there are important aspects to scoping due diligence on target companies at the pre-term sheet stage, we believe it would be most appropriate to introduce the DDQ (see questionnaires) when the initial term sheet is shared with the target company (even if the syndicate may not have been formed yet). This accomplishes three critical goals: 

  • it establishes DEI&B expectations

  • helps inform the legal team on the necessary drafting requirements for the investment documents

  • provides valuable data points to the VC

It should be noted that a decision on funding the company will not (necessarily) be based on the results of the questionnaire, but instead will create a “baseline” and provide a foundation for conversations and possible Board action (refer to BIIG’s “DEI&B at the Board” Guidance) for continuous evolution.   

In the case of diligencing BD partners (for license and collaborations) or vendors, the shorter questionnaire may be introduced as early as the vendor qualification stage (in the case of a vendor) or when a BD LOI or Term Sheet is being contemplated. 

Next, below are DEI&B tools the VC may choose to include during the term sheet and investment document stage:

  • Term Sheet - For Companies and Lead Investors (VCs) 

  • Term Sheet – For VCs (Rider 2)

  • Investors Rights Agreement Covenant (Rider 3)

  • Definition of “Cause” to be included in employment agreements (Rider 4)

  • Learn about why DEI is an essential business consideration for VC Firms & biotech companies.

    Business Considerations

  • Download the DDQ Toolkit.

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  • Go back to the Working Group Member Home Page to learn more about what our other working groups have done.

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