When you’re pitching investors, wooing venture capitalists, reviewing term sheets, or issuing SAFEs, due diligence and fundraising procedures are essential to the read review journey of a startup. As the founder the ability to present a clean and organized view of your company is crucial in the process. Making sure that your finances are in order, making sure that you have an up-to-date cap table, and quickly responding to additional investor requests are among the most important aspects of navigating fundraising and due diligence processes smoothly.
When investors decide to invest in your business, they are sold on the potential of your product as well as the market opportunities it presents. However they are also considering the risk that your business could not meet its potential. They will therefore want to verify any information you give them during the due diligence process by looking over evidence and performing an analysis of financials. This will give them assurance that they are making an informed investment decision.
For example, an investor will look for copies of contracts that prove customer commitments, test results that back your performance claims and market research, and more. As a result, it is essential for startups to be prepared to provide and share all of the information needed during due diligence with investors. A data room such as DocSend can aid you in organizing and managing the sensitive documents an investor could request during due diligence. Smart permissions management lets you grant access only to those who require it.
Investors must also assess your intellectual property portfolio well, which is another aspect of your due diligence checklist. As a result you must be able to prove that you own legal rights to all of your IP assets and to disclose any agreements with third-party companies that impact revenue.
The amount of documentation startup companies must prepare for due diligence depends on the stage it is at. Pre-seed investors and seed investors, for instance might only require a few pieces of documentation, such as a proforma cap table and incorporation papers. Once you get to the priced round stage of fundraising, investors will require a more thorough approach and will require a complete suite of legal and financial documents.
The process of due diligence can be long however, with a careful approach and a clear view of your business it shouldn’t be a burden or difficult to navigate. Even if you’ve never received any funding it is important to remember that fundraising is an ongoing and fluid process. It is therefore wise to begin contacting investors and developing relationships with them, and also sharing information in the course of time. It is crucial to keep the momentum up and to be responsive to questions from investors so that you can close your Series A round of funding successfully.
