How to Prepare Your Startup for a Due Diligence Process – Part 2

Due diligence, as we said in our last post on the subject, is an audit procedure that a potential investor goes through before agreeing to fund your enterprise.

Before beginning the procedure, we recommend that you sign a confidentiality agreement before disclosing any sensitive data. We’ll go over a few steps to get you ready.

  1. Prepare your team – The human factor is a critical component of effective collaboration, and VCs would often prefer to work with someone who they believe is a good fit in terms of vision and personality.

2. Examine your product – Expect potential VCs to dig deep into how your product works, how it is created or developed, and how you intend to deliver it to customers. Startups with a software product can expect comprehensive code reviews. Investors will be interested in how well-written your code is and whether or not your platform is scalable.

3. Understand your market – Investors are interested in the feasibility of the market you’re entering as well as your overall position in it. They’ll request reliable information on the size of the market and how much of it you’ll be able to capture, and they’ll almost certainly conduct extra research on their own.

4. Equity Structure – Investors will closely examine any transactions between your startup and past investors, paying specific attention to debt, share structure, and other contractual terms.

5. Customer data and supply chain contracts – Investors will consult with customers to confirm that your product is helpful to them. They’ll also want to know about your supply chain so they can learn about the vendors and suppliers you interact with and verify the accuracy of your documents.

If you are planning for or in the midst of a due diligence process, you should seek legal guidance to ensure that every aspect is adequately covered and that nothing is overlooked.

References

  1. https://www.embroker.com/blog/due-diligence/ accessed 13 October 2023
  2. https://asperbrothers.com/blog/startup-due-diligence/ accessed 13 October 2023

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