When you’re making pitches to investors, contacting venture capitalists, reviewing term sheets or issuing SAFEs, due diligence and fundraising procedures are a crucial part of the startup journey. As the founder you must be able to demonstrate an organized and clear view of your company is crucial to the success of the. Making sure that your finances are in order, ensuring you have an up-to-date cap table, and responding quickly to additional investor requests are among the most important aspects of managing fundraising and due diligence procedures smoothly.
When investors decide to invest in your company they are enticed by your product’s potential as well as the potential market opportunity it can provide. However they are also evaluating the risk that your business may fail to fulfill its potential. That’s why they will want to verify the information you give them during due diligence by examining the evidence and conducting a financial analysis. This will give them the confidence that they are making an informed investment decision.
Investors will demand documents such as copies of contracts that verify commitments to customers, test reports that support your performance claims and market research. This is why it is crucial for startups to be prepared to provide and share all this data during due diligence with investors. A data room like DocSend can assist you in organising and controlling all sensitive documents that an investor might 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 a component of your due-diligence checklist. You must therefore be ready to prove that you are the owner of all of your IP assets, and disclose any agreements that could affect your revenue.
The amount of documentation that startups must create for due diligence is contingent on the stage in which it is. For instance, pre-seed or seed investors may only require basic documents, like an pro forma cap table and incorporation paperwork. Investors will be more thorough once you get to the point of a priced round of fundraising. They will require all financial and legal documentation.
The due diligence process could be lengthy but with a meticulous approach and an accurate view of your business it shouldn’t be overwhelming or difficult to navigate. Even if your company hasn’t yet raised any money it is important to keep in mind that fundraising is a continuous and fluid process. Therefore, it is advisable to begin courting investors and building relationships with them, and also sharing information in the course of time. As the process progresses, it is important to keep the momentum going and remain open to inquiries from investors so that you can close a successful Series A round of funding.