Due Diligence and Fundraising Processes for Startups

If you’re making pitches to investors, contacting venture capitalists, looking over term sheets, or issuing SAFEs due diligence and fundraising procedures are crucial to the startup journey. As the founder the ability to present an organized and clean view of your company’s operations is essential to the process. Getting your financials in order, making sure you have a current cap table, and quickly responding to any additional investor requests are some of the most important aspects of navigating fundraising and due diligence procedures smoothly.

Investors are convinced of the potential of your product and the market opportunities that it can provide when they decide to invest in your company. They also look at the risk that your company will not realize its potential. This is why they’ll want to check the information you provide them during due diligence by looking at evidence and performing a financial analysis. This is how they can be confident that they are making an investment decision that is sound.

Investors will request documents like contracts that prove the commitments of customers, test reports that back up your claims to performance and market research. In the end, it is vital for startups to be prepared to provide and share all the information needed in due diligence with investors. A data room like DocSend can help you organize and control the sensitive documents investors may request during due diligence. Smart permissions management lets you allow access only to those who require it.

Investors will also be interested in your intellectual property portfolio, which is part of your due diligence checklist. try here As a result you must be prepared to prove legal ownership of all of your IP assets and report any agreements with third parties that impact the revenue.

The amount of documentation startups must create to conduct due diligence varies based on the stage in which it is at. Pre-seed investors and seed investors, for example may only require minimal documentation, such as an official cap table and incorporation documents. However, once you’ve gotten to the priced round stage of fundraising, investors will take an a lot more comprehensive approach and will require a complete collection of financial and legal documents.

The process of due diligence can be lengthy, but with careful preparation and a clear view of your business, it shouldn’t be stressful or difficult to navigate. It is also important to remember that fundraising is a lengthy and fluid process, therefore it is advisable to begin making contact with investors, developing relationships and sharing information with them as time goes on even if you’re not yet raising funds. It is important to keep the momentum going and to be responsive to questions from investors so that you can close your Series A funding round with a positive outcome.