If you’re reading this, your startup is likely raising (or preparing to raise) capital. Congratulations!

Your startup team has developed its minimum viable product, tested the market, and proven the utility of your offering. The company-building phase is just beginning, but you’ve reached an important milestone. With some investment from a venture capital collaborator, your company will have the fuel to help reach your next set of goals.

There’s a lot going on. Pitch decks and investor meetings are taking up most of your time. Your potential investors have asked you to take on the due diligence process: the exercise that allows them to analyze the opportunities and risks associated with your company. There are plenty of documents, forms, and data to keep track of, whether you’re in the middle of the process or getting ready to start.

Oh, and did we mention all the other parts of your job you have to juggle as well? You know–  closing deals, meeting clients, preparing monthly reports – the stuff you need to do to run and scale your startup. Fundraising due diligence can be difficult in the midst of a busy schedule. If you aren’t on top of it, your legal service bill could be extensive. We’ve got something that can help.

At Fidelity, we understand the stage you’re at. We’ve helped our startup collaborators take the rewarding, yet complicated, journey from seed funding to Series A to IPO and beyond. Through these experiences, we’ve identified the key points for startup leaders in the financial due diligence process with investors.

If you’re looking for even more information, download our “Fundraising Due Diligence Checklist.”

Let's first identify the roles of your company’s major players, and then outline the key documents you’ll need as you go through financial due diligence:

Startup Due Diligence for CEOs and Founders

As with many other startup activities, CEOs and founders will be the face of the due diligence process. Your potential investors are using the due diligence process to gather information about your business, your team, and your product. VCs also often use this process as a trial run of sorts. CEOs that take an organized and proactive approach towards their documents and records typically make the best impression. If they can, CEOs and founders should collaborate with advisors and attorneys as they spearhead the startup due diligence exercise.

Startup Due Diligence for Fractional and Full-Time CFOs

CFOs play a crucial role in day-to-day due diligence. In many early-stage companies, the CFO will be responsible for organizing documents and records, chasing down missing signatures, and overseeing cleanup efforts, when needed. They’ll likely be more in-tune with documentation related to equity, debt financing, and employee compensation.

Related: Day-to-Day Due Diligence: Don't Drop the Ball When Scaling Your Business

The Fundraising Due Diligence Checklist

We’ve compiled a high-level guide to help you think through and plan for every step of due diligence. There’s a lot to manage, but the fact that you’re reading this means you’re off to a good start. Let’s start checking boxes and tracking down startup due diligence documents: 

 A.) Actions and Minutes

Potential investors want to see documentation of all stockholder and board actions, as well as meeting minutes from all stockholder/board meetings. Members of the board are future colleagues for your investor, after all.

B.) Charter Documents and Organization

Think of this as your company’s birth certificate. These are documents related to the creation and structure of your company: Certificate of Incorporation, bylaws, organizational chart, etc. 

C.) Equity Records and Equity Holder Agreements

Who owns the company? It’s a crucial element of the venture capital due diligence checklist. Your investors will first want to see a fully diluted cap table — and all the documentation that’s tied to it. Docs like option grants, a summary of vesting schedules, and signed investor voting agreements are included. 

D.) Legal and Regulatory

Of course, legal due diligence will come into play as well. Investors need to be aware of any pending litigation, consent degrees, or securities filings.

E.) Intellectual Property

Especially in the SaaS world, early employees often have to sign intellectual property (IP) assignment agreements. These documents essentially say that the company owns the ideas that employees are developing. Read up on Reggie Brown’s expensive lawsuit against Snapchat to see the importance of IP documentation in real life.

Additional IP items include patents, copyrights, trademarks, and a list of open source software the company uses or distributes.

F.) Management, Employees and Consultants

Now to your most important resource: your people! Here’s where you’ll provide information on employee offer letters, benefit and profit-sharing plans, stock options, etc.

G.) Debt Financing

VCs will want to see the terms of any existing venture debt deals or lines of credit to evaluate the financial health of your company.

H.) Other Agreements to Which the Company or Any Subsidiary is a Party

This is where you’ll disclose information about your interactions with external stakeholders. Examples include property leases, term sheets with previous investors, and a list of customers and suppliers with annual revenue amounts.

I.) Miscellaneous

Last order of business: disclose those final documents and records! Fill in the gaps by providing items such as your company’s 409A valuations, audited financial statements, annual budgets, and directors/officers insurance policies.

It takes a lot to be financing-ready. Every action you take to prepare now will help you and your team when the next round approaches. We’ve mapped out even more items in our free lawyer-approved Fundraising Due Diligence Checklist available for download here!

Helping You Ace the Startup Due Diligence Process

The team at Fidelity is on a mission to help everyone in the entrepreneurial ecosystem — startup teams included — to get through the fundraising process with fewer headaches and less friction.

Our equity management platform — with first-of-its-kind automated equity financing — is built for this purpose. We want to provide busy startups with guardrails for due diligence. Fidelity can draft standard fundraising documents, auto-populating them with the data in your cap table. When you make changes in the docs, the info is updated in your cap table — and vice versa. That means no duplicate docs, fewer errors, and less confusion. Best of all, Fidelity’s secure data room keeps all of your documents and data in one place.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

Third parties mentioned and Fidelity are not affiliated.

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