Due diligence and fundraising are essential for the start-up process whether you’re pitching investors or seeking venture capitalists. It is essential that you are able to present a clear and well-organized view of your business. Making sure your finances are in order, making sure that you have an up-to-date cap table, and swiftly quality of earnings checklist responding to requests from investors are among the most important aspects of navigating the fundraising and due diligence processes smoothly.
Investors are convinced of the potential of your product and the market opportunities that it provides when they decide to invest in your company. However they are also considering the possibility that your company may fail to fulfill its potential. This is why they’ll want to confirm the information you provide to them during due diligence by examining evidence and performing financial analysis. This will give them assurance that they are making an informed investment decision.
Investors will request documents such as copies of contracts that confirm commitments to customers, test reports that back up your claims to performance and market research. It is therefore essential that startups are prepared to share and provide all of the information required during due diligence. A data room such as DocSend is an excellent tool to help you organize, control access to, and secure all the sensitive documents that an investor might require during due diligence. Smart permissions management allows you to grant access only to those who require it.
Investors are also interested in your intellectual property portfolio, which is a component of your due diligence checklist. Therefore, you should be prepared to prove that you own all of your IP assets, and to disclose any agreements that could affect your revenue.
The amount of documents a startup requires to prepare for due diligence varies depending on the stage of fundraising it’s in. For instance, pre-seed or seed investors might only require cursory documents, such as a pro forma cap table and incorporation papers. However, once you’ve gotten to the stage of pricing of fundraising, investors will require an even more thorough approach and will require a complete collection of financial and legal documents.
While due diligence can be lengthy, with careful preparation and a clear vision of your company it shouldn’t be difficult or stressful to navigate. It is also important to keep in mind that fundraising is a long and a fluid process, so it is important to begin courting investors, building relationships, and sharing information with them over time even if you’re not yet able to raise funds. It is important to keep the momentum up and to respond quickly to questions from investors to ensure that you close your Series A round of funding successfully.