Due diligence and fundraising are essential for the start-up process, whether you are pitching investors or wooing venture capitalists. It is important that you present a neat and organized picture of your business. Making sure that your finances are in order, ensuring that you have a current cap table, and quickly responding to additional investor inquiries are some of the most important aspects of managing fundraising and due diligence processes efficiently.
When investors make a decision to invest in your company, they are sold on the potential of your product and the market opportunities it presents. However, they are also evaluating the possibility that your company could not meet its potential. They will, therefore, want to confirm any information you provide them during the due diligence process by reviewing evidence and conducting an analysis of financials. This will give them the assurance that they are making an informed investment decision.
For example, an investor is likely to seek out copies of contracts that prove customer commitments, test results that back your claims about performance as well as market research and more. As a result, it is essential for startups to be prepared to provide and share all this data during due diligence with investors. A data room like DocSend is a powerful tool to aid in organising, controlling access, and protect all the sensitive documents an investor might request during due diligence. Smart permissions management lets you restrict access to only those who require it.
Investors should also examine your intellectual property portfolio as well, making it a element of your due diligence checklist. As a result you must be prepared to prove that you own legal rights to all your IP assets and report any agreements with third parties that impact the revenue.
The amount of documentation required by startups to prepare for due diligence differs based on the stage of fundraising it is in. For example, pre-seed and seed investors may only need basic documents, like a pro forma cap tables and incorporation papers. However, once you’ve gotten to the priced round stage of fundraising, investors will need the more thorough approach and will require a full suite of legal and financial documents.
The due diligence process may be lengthy however, with a careful approach and a clear understanding of your business, it shouldn’t be stressful or difficult to navigate. Even if you’ve not yet raised any funds, it’s important to remember that fundraising is a continuous and fluid process. It is therefore advisable to begin courting investors and developing relationships with them, as well as sharing information as time goes by. It is vital to keep the momentum going and to respond to questions from investors to ensure you can close your Series A round of funding successfully.