If you’re making pitches to investors, contacting venture capitalists, examining term sheets, or issuing SAFEs due diligence and fundraising processes are essential to the startup journey. As a founder you must be able to demonstrate an organized and clear overview of your company is crucial in the process. Making sure your finances are in order, making sure you have a current cap table, and responding quickly to additional investor inquiries are some of the most important aspects of navigating 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 evaluating the possibility that your venture could fail to meet its potential. For that reason, they’ll want to confirm the information you provide them during due diligence by examining evidence and performing financial analysis. This will give them confidence that they are making an informed investment decision.
For instance, investors will look for copies of contracts that prove commitments to customers as well as test results that prove your claims of performance, market research, and much more. It is therefore crucial that startups are prepared to share and create all of this information during due diligence. A data room like DocSend is a fantastic tool to aid you in organizing, controlling access to all the sensitive documents an investor may request during due diligence. Smart permissions management allows you to give access only to those who require it.
Investors will also be interested in your intellectual property portfolio, which is a part of your due-diligence checklist. You should therefore be prepared to prove that you own all of your IP assets, and also to share any agreements that could impact your income.
The amount of documentation required by startups to be able to conduct due diligence differs based on the stage of fundraising that it is in. Seed investors and pre-seed investors, for instance, may only require cursory documentation, such as an official cap table and incorporation documents. But once you get to the priced round stage of fundraising, investors will take an a lot more comprehensive approach and will require a complete range of financial and legal documents.
While the due diligence process can be lengthy, with proper preparation and a clear picture of your company it shouldn’t be difficult or stressful to navigate. Even if you’ve not yet had any funds raised it is important to keep in mind that fundraising is an ongoing and fluid process. It is therefore prudent to begin courting investors and establishing relationships with them, and also sharing information in the course of time. It is essential to keep the momentum going and to be responsive to questions from investors to ensure that you are able to close your Series A funding round with a positive outcome.