Due diligence is the serious investigation that follows investor interest, not the victory lap after a good pitch. A prospective investor or buyer examines the company’s financial picture, assets, liabilities, commercial potential, team, technology, product, market, and key documents before committing money. section 12.1 section 12.0
A pitch can open the door, not close the deal
An angel-group presentation led to a request for due diligence after enough attendees indicated they might invest if the review checked out. Treat that request as evidence of interest—and as an exam whose result can still determine whether financing happens. section 6.5 section 12.1
The CEO commonly leads an all-hands effort, with major legal and financial involvement and input from every function. Manage it carefully: investors have not yet committed enough time or expense to work through major surprises, so unresolved issues can give them a reason to walk away. section 12.1
Prepare before investors ask. A practical readiness process is to:
- Gather clear answers on financing, technology, product, market, business model, team, and financials. section 12.1 section 12.2
- Document the company’s offering, differentiation, intellectual property, customers, revenue model, development status, and market rationale. section 12.2
- Organize past, current, and projected financial information, including revenue streams, costs, margins, pipeline, and backlog where applicable. section 12.2
- Put responses and supporting documents in a data room that the company or investor can access directly. section 12.2 section 12.5
- Do the work before first investor meetings so diligence does not delay a decision you can control. section 12.5
Table 12.1 Due-diligence information to prepare in advance: financing details
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Information
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Due diligence questions to answer
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1.
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Company address
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Provide contact details of the main office.
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2.
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Financing round
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What round is this?
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3.
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Amount raised
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How much money are you raising in this round?
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4.
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Other new investors
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Do you have an investor who wants to lead the round or a group of new investors who want to participate in this round?
How much money will the existing investor be committing to this round?
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5.
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Amount invested
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How much total has been invested prior to the new round?
How much in grants and loans has the company received?
How much of those has to be paid back?
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6.
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Post-money of last round
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What was the post-money valuation of the previous financing, and how much was invested?
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7.
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Expected pre-money
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What pre-money valuation are you expecting?
If you already have term sheets in place, outline their key metrics.
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8.
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Timing
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What is the timeline for this round? When do you expect to close?
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9.
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Existing investors
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Provide a shareholder/capitalization table.
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10.
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Founding; history
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Provide some history on the company: when and why it was founded, how the founders/team came together, major milestones achieved, etc.
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11.
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Main activities
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What is the company doing (broad description of activities)? If available, point also to company/product videos.
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Use this checklist slice to prepare the financing facts investors commonly request, including the round, amount raised, existing investment, and valuation expectations. section 12.2
The practical goal is not merely to survive requests for information. Make review easy enough to reassure investors that the company is organized, transparent, and ready for the proposed transaction. The same discipline matters when an acquirer investigates a company during an acquisition. section 12.2 section 31.0
