Due Diligence and Fundraising Processes for Startups

Due diligence and fundraising are crucial to the startup journey whether you’re pitching investors or wooing venture capitalists. It is crucial to be able to present a clean, organized view of your business. Making sure that your finances are in order, ensuring you have a current cap table, and swiftly responding to any additional investor requests are among the most important aspects of managing fundraising and due diligence procedures smoothly.

When investors make a decision to invest in your startup they are enticed by the potential of your product and the potential market opportunity it could bring. However they are also evaluating the risk that your business could not meet its potential. They will, therefore, want to confirm any information you provide them during the due diligence process by looking at evidence and conducting an analysis of the financials. This is how they can be sure that they have made a sound investment decision.

For instance, investors will want copies of contracts confirming customer commitments as well as test results that prove your performance claims as well as market research and more. Therefore, it is crucial for startups to be prepared to produce and share all the relevant information when conducting due diligence with investors. A data room like DocSend can aid you in organizing and managing all sensitive documents that investors may request during due diligence. Smart permissions management lets you allow access only to those who need access to the documents.

Investors should assess your intellectual property portfolio as well, which is an additional part of your due diligence checklist. Therefore, you should be prepared to demonstrate that you own all of your IP assets, and to disclose any agreements that could impact your income.

The amount of documentation a startup needs to prepare for due diligence varies depending on the stage of fundraising it’s in. Seed investors and pre-seed investors, for instance, may only require cursory documents, like the proforma cap table as well as incorporation documents. Investors will be more thorough once you get to the stage of a costed round of fundraising. They will need an entire set of financial and legal documents.

The due diligence process may be long however, with a careful approach and an accurate view of your business it shouldn’t be a burden or difficult to navigate. It is important to remember that fundraising is a lengthy and fluid process, so it is important to begin engaging with investors, establishing relationships and sharing information with them over time even if you’re not yet raising funds. As the process progresses it is crucial to keep the momentum going and remain attentive to investor inquiries so you can close a successful Series A funding round.