Due diligence: what investors check before the money moves.
Diligence is how an investor confirms what you told them. Deep diligence at the lead stage, then a lighter legal check before closing.
The short answer
Expect questions on your team, market, product and traction, then a legal and financial check: cap table, incorporation, IP assignment, key contracts and financials. Prepare a clean data room before you pitch, and most of it goes quickly.
How it works
Business diligence
Customer calls, product demos, market sizing and a close look at your metrics.
Team and references
Investors call people who know you, including some you did not list.
Legal diligence
Incorporation, cap table, IP assignment, employment and key contracts.
Financial diligence
Bank statements, revenue recognition, burn, and any debt or liabilities.
What depth to expect
Angels and small checks may do little beyond a few calls. A lead in a priced round goes deeper, and their lawyers run confirmatory diligence after the term sheet. Regulated sectors such as health, finance and defense add their own checks, like licenses, data handling and export rules.
What slows rounds down
Most delays are fixable paperwork: IP that a founder or contractor never assigned to the company, a cap table that disagrees with signed documents, missing board consents, or unfiled 83(b) elections. Fix these before you raise, not during closing.
- Is all IP assigned to the company by every founder and contractor?
- Does the cap table match every signed SAFE, note and grant?
- Are board and stockholder consents on file for past issuances?
- Can you share bank statements and metrics that match your deck?
Terms to know
Data room
A shared folder holding the documents investors review.
IP assignment
A signed agreement giving the company ownership of work its people create.
Confirmatory diligence
The legal check after a term sheet that confirms what you said.
Will your deck's numbers survive diligence?
Investors check every metric on your slides against your records. Upload your deck and we flag claims that need stronger support.
Questions founders ask
Should I diligence investors too?
Yes. Ask founders they have backed, including ones whose companies struggled, how the investor behaved when things went wrong.
How long does diligence take?
It varies with the round and how prepared you are. A ready data room and clean cap table are the biggest things you control.
Sources
Sources: standard US venture financing practice; IRS guidance on Section 83(b) elections. Not legal, tax or financial advice.
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