Due Diligence: What Investors Really Check
Due diligence can make or break a round. Here’s what investors actually look at and how to get your startup ready.
After a term sheet, due diligence is where deals get done or undone. Founders who prepare well move faster and avoid last-minute surprises that can kill a round.
What investors check. Legal: incorporation, cap table, IP, contracts, and compliance. Financial: revenue recognition, burn, and projections. Product and tech: architecture, security, and scalability. Commercial: customer concentration, churn, and pipeline. Investors will also reference-check key team members and sometimes customers. If you’ve pitched in the Arena, they may already have a first impression; diligence is where they verify it. Legal DD focuses on clean ownership, no hidden liabilities, and proper IP assignment from founders and employees. Financial DD validates that your numbers match the data room and that your accounting is in order. Tech DD may include a questionnaire or a call with your CTO; be ready to explain your stack, security, and scalability.
The data room. Organise it by category: corporate, financial, product, commercial, legal. Use clear naming and a logical structure. Include cap table, previous round documents, key contracts, and up-to-date financials. Incomplete or messy data rooms delay the process and raise red flags. Advisors in our Network can help you set one up correctly. Build the data room before you start fundraising; updating it in real time during a process is error-prone. Use a proper data room tool (e.g. DocSend, Notion, or a legal provider) with access controls and versioning.
Common issues. Cap table errors, undisclosed liabilities, and inconsistent numbers between deck and actuals. Fix cap table and legal issues before you fundraise; reconcile any discrepancies between what you’ve presented and what’s in the data room. Honesty and speed in responding to requests build trust. If you discover something during DD that you didn’t disclose, tell the investor immediately; surprises at the end can kill the deal. Address small issues proactively so they don’t become big ones.
Closing. Once diligence is complete, the focus shifts to final documents and wiring. Stay responsive and keep your key people available. The goal is a clean close—and then back to building, with new capital and new partners on the cap table. Keep your lawyer and accountant in the loop; they can help you avoid last-minute fixes. After close, send a thank-you and a brief update plan to your new investors. Then execute.