In Dragon's Den, investors use due diligence to check a business before completing a deal.
Due diligence is the investigation carried out before an investment, acquisition or other major transaction. A dragon and professional advisers may examine sales records, costs, debts, ownership of intellectual property, legal disputes, customer claims and the accuracy of statements made in the pitch.
This process matters because a short television presentation cannot reveal every commercial risk. A product may have strong sales but weak margins, or a founder may not own all the rights needed to manufacture and sell it. Verification helps the investor decide whether the proposed deal is sound.
A handshake or verbal agreement in the studio is therefore not the same as a completed contract. If due diligence uncovers a serious problem, the investor may renegotiate or withdraw.