Startup Due Diligence -Things Entrepreneurs Should Know

Startup Due Diligence-Things Entrepreneurs Should Know

Due diligence is a crucial step in the ever-changing startup funding landscape that has the power to make or destroy an investment agreement. Knowing the details of due diligence is crucial for confidently navigating the funding route, regardless of experience level or level of inexperience with startups. We’ll cover what company founders need to know about due diligence in this extensive guide, including its goal, when it happens, what investors look for, and how well-prepared businesses can be.

Understanding Due Diligence: A Fundamental Overview

In the startup space, due diligence refers to the meticulous audit process undertaken by potential investors before committing to funding a business.Due diligence’s main goal is to confirm that the startup’s information matches real facts in order to protect investors from danger and provide transparency.

Investors use due diligence in search for any hidden issues or warning signals that could impact the investment, in addition to ensuring that a company is speaking the truth about what it says. Two factors that can influence how extensive and rigorous the due diligence process is are the stage of development at which a startup is in and the amount of capital involved.

When Does Due Diligence Occur?

Due diligence typically occurs after a startup has presented to an angel or venture capital firm. After investors express interest in the plan, it seems sense to begin the process of researching the company. This process is comparable to conducting a thorough survey before purchasing real estate, which is a crucial stage for investors to feel safe and confident in the venture.

The duration of the due diligence process might vary, ranging from a post-pitch in-person discussion to a more drawn-out investigation involving attorneys, accountants, and a thorough evaluation of all supporting material. Consequently, investors use this crucial stage to verify the startup’s claims, evaluate its financial standing, and investigate the operational and legal elements of the company.

What Will Investors Ask for During Due Diligence?

During due diligence, investors usually use a basic checklist that is customized to meet their needs. Even while each investor may have a different checklist, companies can expedite the process by ahead of time creating standard documentation. To assist startups in successfully navigating the due diligence evaluation, consider the following eight points:

1. Financial Information and Business Plan:

Present financial statements and a well-developed business plan outlining revenue streams, cost structures, and growth projections for investor assessment.

2. Intellectual Property Rights:

Submit copyright, patent and trademark to protect assets and ensure legal protection of intellectual property.

3. Minutes and Business documents:

Provide corporate records, meeting minutes, and legal documents to demonstrate regulatory compliance, corporate governance, and transparency in business operations.

4. Lawsuit Transparency:

To reduce risks and give prospective investors transparency, disclose information about any pending or settled legal disputes, settlements, or litigations.

5. Team Interviews and Background Checks:

Facilitate interviews with key team members and allow investors to conduct thorough background checks to assess team competence and reliability.

6. Supply Chain Contracts and client Data:

To assess market reach and scalability, share with suppliers contractual agreements and information into client demographics, retention tactics, and acquisition methods.

7. Revenue and Sales Numbers:

Provide comprehensive revenue reports, sales projections, and customer acquisition metrics to showcase business growth potential and financial performance.

8. Market Analysis:

To show that you understand the market, see growth prospects, and evaluate the positioning of your competitors, provide comprehensive market research, competition analysis, and industry insights.

How to Prepare a Startup for Due Diligence?

Preparing for due diligence is a strategic opportunity for startups to conduct an internal audit, optimize formalities, and verify their growth plans. Consequently, it entails transparent organization and careful attention to detail, making sure that every documentation is correct and consistent with the investment pitch.

Preparing the following ahead of time can help startups:

Articles of incorporation, ownership structure specifics, organizational chart, and other corporate information and structure.

  • Material Importance Agreements including overview of marketing, service, and distribution agreements and Documentation of agreements with major customers and suppliers.
  • Intellectual Property and Technology like copies of intellectual property agreements and invention agreements. Overview of owned and developed items, including patents and trademarks.
  • Documents pertaining to labor and employment, such as conventional employment contracts, personnel data, pension policy details, and any unpaid balances.
  • Financial projections, reports comparing the budget to the actual, and financial statements. details about capital commitments, mortgages, and debt securities.

Startups can give prospective investors a strong and transparent profile by carefully arranging these elements, which will inspire trust and make the due diligence process go more smoothly.

Why Should Startups Be Grateful for Due Diligence?

While due diligence may seem like a rigorous and meticulous process, startups should view it as a valuable opportunity for improvement. Due diligence can reveal areas for optimization, enabling businesses to strengthen any areas of weakness and improve their operations. Additionally, the due diligence procedure gives companies an opportunity to demonstrate their dedication to accuracy and transparency—qualities that are critical to winning over investors.

Due diligence is essentially a two-way street where investors learn everything there is to know about the startup and entrepreneurs learn important things about possible places to improve. Startups that embrace due diligence as a cooperative and advantageous process have a better chance of obtaining capital and progressing to the next stage of development.


Due diligence is a crucial milestone that necessitates planning, openness, and a dedication to accuracy in the cutthroat world of startup fundraising. Consequently, startups that handle due diligence with honesty and diligence will have an easier time getting funding and starting a lucrative new stage of development.

It’s critical for startup founders to view due diligence as a strategic opportunity rather than a barrier. Startups can boost their chances of getting the money required for success by proactively compiling the relevant documentation, understanding investor expectations, and exhibiting a transparent and well-organized profile. These actions will help them negotiate the due diligence landscape with confidence.

Due diligence serves as more than just a gatekeeper—rather, it opens doors for development, advancement, and successful collaborations between investors and businesses. Accept it, get ready for it, and allow it to spark the beginning of the next phase of your business ventures.

Seed Funding For Startups

Seed Funding For Startups- Strategies Entrepreneur Should Know

Entrepreneurship is an exciting journey filled with promises of innovation, disruption, and success. The climb is indeed challenging and demands resilience and perseverance, in addition to resources and network. While arranging resources can be a challenging task, arranging one for a new startup can be even more challenging. Hence, FundTQ has come up with this step-by-step guide to help your startup procure its seed funds, ensuring a strong foundation for growth. Explore our comprehensive insights and strategies customized for securing seed funding for startups.

What is a Seed Fund?

A seed fund is a type of private fund that provides initial capital to startups in their early stages of development. Seed funding is crucial for fledgling businesses, helping them go from concept to a more mature stage where they can attract larger investments. Raising seed capital is a long and complex process, hence a thorough understanding of the same is necessary to undertake a successful fund-raise. Explore our comprehensive insights and strategies customized for securing seed funding for startups.

Plan Your Business

A strong business is like well-oiled machinery with a combination of several levers, interacting with each other efficiently to form a well-oiled machinery. Building one requires a careful understanding of one’s customer, market, industry and Unique Value proposition.

You can always use an MVP (Minimum Viable Product) to test your product’s competitiveness. This would give you an idea as to where your product stands in the industry, and the improvements required thereon to suit the customer’s needs.

Build Your Financial Plan

Seed funds can be arranged both internally (i.e. founder’s past savings) as well as from external investors. While arranging funds from external investors, you must build a clear and concise financial plan. Building a financial plan has three major components:

1) Plan your fund requirements– Calculate your operational costs, product development costs, talent costs and other costs to estimate the total fund requirement.

2) Planning fund utilization- Identify the areas that would require fund allocation. Prioritize areas that will drive growth and prove your business model, such as product development, hiring, marketing, sales and business operations.

3) Creating financial projections- Financial projections for the next three to five years, including revenue, expense and profitability projections, as well as cash flow statements. Despite being estimates, these ought to be reasonable and predicated on reliable information.

Creating An Investor Deck

Once the financial projections have been made, an investor deck or a pitch deck is prepared to garner investor interest. A pitch deck is a presentation that startups use to explain to investors their business model and its evolution in the upcoming years. A successful pitch must contain:

1. The Business Problems that your startup intends to solve and the solutions it offers
2. Market Analysis i.e. how big is the industry and how much you aim to capture
3. Your product and business model
4. Marketing and Sales Strategy
5. Your team signifies their strengths and expertise
6. Financial Projections and how much are you looking to raise

Reach Out To Investors

Once the investor deck is ready, one may leverage one’s professional network to reach out to investors. Startups can either be bootstrapped (i.e. self-financed) or funded by external investors. While both are efficient mechanisms for building a profitable venture, if you want to raise capital from a VC, ensure that your startup satisfies the high return benchmarks set up by VCs (typically 10x returns). You may strengthen your network by visiting industry events and conferences and using online networking platforms, and social media engagement. Hiring an investment banker typically helps in this stage.

Preparing For Investor Due Diligence

Due Diligence is the financial, legal and operational analysis of your business helping investors validate the information presented by you in the previous discussions. They can also evaluate your startup’s growth and possible return on investment, as well as confirm that it complies with all applicable rules and regulations.

Preparing for due diligence can be long and intense. Hence, it is always advisable to keep all the necessary documents ready. You may go through our previous blog Things startups should know about Due Diligence to learn more about DD.

Deal Negotiation And Closure

Negotiating with investors requires a careful balancing act. It requires a thorough understanding of the business’s worth in addition to the perspective of your investor. Be open to discussions and potential changes in terms. However, also know your non-negotiables — the terms you’re unwilling to budge on because they might jeopardize your startup’s interests. Hiring a legal counsel typically helps in this stage.


In the entrepreneurial journey, securing support from diverse investors is vital. Effective communication is pivotal—whether pitching to investors, building your team, or pursuing grants. Articulate your vision, progress, and potential clearly. Be adaptable, refining your strategy based on feedback, and continuously improving as your startup progresses. Remember, fundraising is just one aspect; maintaining transparent and effective communication throughout is key to long-term success.

How To Raise Funds For A Business

Raising funds for a startup is a common challenge, as even the most innovative ideas often require financial support to thrive. For entrepreneurs seeking ways to secure funding, various channels can be explored. Here’s a list of options to consider:

1. Crowdfunding:

Leverage the internet’s power by utilizing crowdfunding platforms. Craft a compelling fundraiser description to attract support from a global audience. Additionally, seeking contributions from friends and family can be a reliable source of funding due to their familiarity with your dedication.

2. Angel Investors:

Secure capital from angel investors who invest in startups in exchange for equity or convertible debt. Many successful tech companies, such as Google and Yahoo, have benefitted from angel investors.

3. Bootstrapping:

Maintain ownership and independence by using personal resources, such as savings or assets, through a method known as bootstrapping.

4. Venture Capitalists:

Seek funding from venture capitalists who provide capital to high-growth potential startups. Unlike angel investors, venture capitalists typically offer financing with higher return rates, often without taking ownership stakes.

5. Microloans:

Explore microloan options with fewer constraints, shorter payment periods, and, in some cases, lower interest rates compared to traditional loans.

6. Small Business Administration (SBA):

Investigate government programs, such as SBA grants or lending, as potential sources of funds. Be aware that SBA grants are competitive, and SBA lending may involve slightly higher interest rates.

7. Purchase Order Financing:

Utilize purchase order financing for businesses with consistent large product orders but insufficient cash flow. This involves a financing company paying the supplier to produce the product until payment is received from the customer.

8. Contests:

Participate in business contests offering prize money with minimal conditions. These contests often target creative businesses and social enterprises.

9. Product Pre-Sales:

Emulate successful tech companies by offering customers the option to pre-order products, generating funds to fulfill orders and gauging product demand.

10. Strategic Partners:

Collaborate with strategic partners, including suppliers, distributors, and customers, to obtain credit and supplement your budget until the business achieves financial stability. While not direct funding, this support can be instrumental.