Investor due diligence involves a comprehensive process of analyzing a company’s full potential. Due diligence service providers look at everything from financial history to current assets and liabilities to a company’s labor force. They also review the products or services the company offers.

The product or service review portion of due diligence is designed to help investors better understand what a company actually does. This may sound pretty basic, but reviewing products or services tells investors as much about company founders and management team members as it does the company itself.

So, what does such review entail? According to due diligence-as-a-service (DDaaS) provider Mezy, investors are keenly interested in the following five things:

1. The Need Being Met

A fundamental rule of business is to find a need and meet it. These days, the principle has been expanded to solving problems. One way or the other, investors want to know how a company’s products or services apply. What need is being met? What problem is being solved?

It helps when startups are meeting needs or solving problems in an underserved area. If a company is trying to establish itself in an already crowded industry, success will be hard to come by. But if a company finds an underserved area with plenty of unmet needs, more opportunities for success present themselves.

2. Factors That Add Value

Finding an unmet need or an unsolved problem isn’t the be-all and end-all. Meeting that need or solving a problem has to add value. Otherwise, customers will not be interested. A case in point is the electronic cigarette.

Tobacco has always been problematic from a health standpoint. But way back when the first electronic cigarette was invented in the 1960s, it did not add value because consumers were content to keep smoking. It wasn’t until the 2000s that e-cigarettes added value. Vaping is now a multi-million-dollar industry.

3. What Differentiates a Company from the Competition

Very few startups enter their industries without competition. Therefore, it is important that investors understand what differentiates a company from the competition. In terms of due diligence, one of the things service providers do is look into other companies providing the same product or service.

4. Existing Strategic Relationships

If due diligence turns up any existing strategic relationships, that’s a big plus. The right relationships can propel a startup forward in any number of ways. Investors look at partnerships with suppliers, product marketers, wholesalers and distributors, etc.

From time to time, due diligence might turn up strategic relationships that may not turn out to be profitable. They act as a warning sign, suggesting caution among investors. One way or the other, investors want to know about all existing relationships before they jump on board.

5. Product or Service Scalability

The products and services a company offers need to be scalable at least to some degree. Why? Because startups are not supposed to remain static. They are supposed to grow, expand, and eventually reach the point of profitability. They cannot do that if their products and services aren’t scalable.

Having said that, just because a company’s products or services are not scalable in their current state does not mean they cannot be made scalable down the road. If the potential is there, investors might be willing to look past the issue in the short term.

It should be obvious that the product or service review is an important part of due diligence. Investors put time and effort into it because products and services are the core of any business. If they are not up to par, a company is not worth investing in.