Embarking on your first fundraising journey can be an intimidating process, particularly when it comes to investor due diligence. To ease the process, we’ve prepared a clear due diligence checklist to help your startup sail through investor scrutiny. This goes along with our previous article Fundraising Checklist to give you an overview of what preparations to expect.
This checklist is designed for early-stage startups. Regardless of whether you’re just starting out or spent 1-3 years in operation with little to no external funding, this guide serves as your roadmap to a successful due diligence process. Let’s delve into the essentials of due diligence preparation.
The Due Diligence Checklist
1. Corporate Documents: Keep your certificate of incorporation and any relevant documents regarding your establishment.
2. Capitalization Table: Your cap table should be up-to-date, detailing all equity owners of the startup, their percentage ownership, and any outstanding options or warrants.
3. Historical Financial Information: If applicable, have your financial statements readily available. These include balance sheets, income statements, and cash flow statements.
4. Product Information: Be ready to demonstrate your product or service, share any patents or intellectual property rights, and provide any pertinent research and development documentation.
5 . Business Plan: Maintain a detailed business plan that outlines your startup’s purpose, targets, and strategies for achieving those targets. Additionally, provide a clear breakdown of how you plan to utilize the funds you aim to raise, detailing how each dollar will help achieve your strategic goals.
6. Customer Information: If applicable, compile details about your customers, including key contracts and any information on your customer acquisition cost (CAC) and lifetime value (LTV).
7. Contracts: Make sure to have copies of all significant contracts and agreements, including customer contracts, vendor agreements, partnership agreements, and lease agreements.
8. Legal Compliance: Ensure your startup is compliant with all relevant laws and regulations. This could include licenses and permits necessary to operate your business.
9. Employment and Management: Keep copies of employment agreements, stock option plans, and compensation details for directors, officers, and employees. Don’t forget details about the management team, such as their backgrounds and roles.
If your startup has previously received a small amount of funding, consider including the following:
– Previous Investment Information: Maintain clear records of the prior investment, including the investors, the amount they invested, and any related terms or conditions.
– Use of Funds: Have a detailed report ready on how the previous funding was used and its impact on your startup’s growth. This can help to showcase your effective use of investment capital.
Navigating through due diligence is a critical stage in the fundraising journey. Typically, the potential investor will guide you through the items you need to file. This checklist is to show you what to expect, helping you to be better prepared and confident when dealing with potential investors.
At VeFund, we’re here to support you on your fundraising journey. If you’re looking for investors, we invite you to build your data room with us and apply to our active investors. We’ve also made the valuation process easy with our automated valuation calculator. Try it out and get an instant valuation for your startup. We’re excited to see where your startup journey takes you!