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Recommended Due Diligence: What to Prepare for Investors

Recommended Due Diligence: What to Prepare for Investors

Preparing for Due Diligence

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When you plan to raise capital from investors, you should be prepared to provide them with documents relating to all areas of your firm. Investors play a high-risk game, especially when investing in early and growth stage companies. Investors want to know whether you can measure up to the competition, navigate market conditions, and remain stable if you scale. They will want to know almost everything about your firm and its operations.

The process through which prospective investors learn about your company is called due diligence.

Below is a list of documents that prospective investors are likely to request when they conduct due diligence.  It is best to have these documents in order before prospective investors ask to see them.

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Corporate Records and Documents:

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Formation Documents and Corporate Governance

  1. Articles of Incorporation
  2. Certificates of Designation
  3. Rights / Bylaws / Shareholder Consents
  4. Board of Director Consents

Board of Directors and Board of Advisors

  1. Composition of Board of Directors / Advisors
  2. CV or Resume of Members

Board Minutes / Resolutions

  1. Board Meetings’ Minutes / Resolutions

Employee Directory

  1. Employee Breakdown Document

Key Management / Contractors

  1. Board Meetings’ Minutes / Resolutions

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Capitalization Documents:

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Capitalization Table Documents

  1. Up-to-date Capitalization Table

Security Distribution Information

  1. Security Purchasing Agreements

409A Valuations and Security Plans

  1. Latest 409A valuation(s)
  2. Equity Incentive Plan Documents

Capitalization Voting Agreements

  1. Security Transfer Voting Agreements
  2. Registration Voting Agreements
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Financial Reports:

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Historic Financial Statements

  1. Historic / Current Income Statements
  2. Historic / Current Balance Sheet
  3. Historic / Current Cash Flow Statement

Projected Financial Statements

  1. Projected Income Statements
  2. Projected Balance Sheets
  3. Projected Cash Flow Statements
  4. List of Operating Model Assumptions

Financing and Burn

  1. Projected Burn Rate Analysis
  2. Financing Strategy Document

Capitalization Voting Agreements

  1. Security Transfer Voting Agreements
  2. Registration Voting Agreements
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Intellectual Property:

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Company IP

  1. List of Company IP
    1. Trademarks
    2. Patents
    3. Copyrights
    4. Domain Names
    5. Documentation of Company IP

Proprietary Rights

  1. Licenses of Proprietary Rights

Developmental IP

  1. Developmental / 3rd Party agreements

IP Agreement Information

  1. Proprietary Information / Invention Agreements

Infringement Documents

  1. Documentation of IP infringement claims

Cyber Security Documents

  1. Cyber Security Policy documentation
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Agreements:

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Employee Contracts

  1. Key Employee Contracts
  2. Contractor Contracts
  3. Company or Employee Non Competes
  4. Standard Offer Letter

Written Agreements

  1. Contract terms and conditions with all customers
  2. Contracts with suppliers
  3. Third Party Agreements
  4. Marketing Agreements
  5. Profit and loss sharing agreements
  6. Agreements for apportionment of tax liabilities
  7. Rental and lease agreements
  8. Service agreements
  9. Financing arrangements

External Company Agreements

  1. Agreements relating to M&A
  2. Partnerships or Properties
  3. Disclosure of Conflicts of Interest
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Legal Documents:

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Internal Legal Issues

  1. Documents relating to pending litigious actions
  2. Documents relating to threatened litigious actions
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External Legal Issues

  1. Environmental or Safety Studies
  2. Company Audits
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Business Strategy and Documents:

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Current Operations

  1. Details on Sales and Marketing Strategy
  2. Pricing Methodology
  3. Business Development Initiatives
  4. Current and Proposed Strategic Alliances

Pipeline

  1. Current list of Pipeline Opportunities

Acquisition Metrics

  1. Discussion of Customer Acquisition Cost
  2. Discussion of Customer Retention Rate

Customer Contracts

  1. Details on executed contracts
  2. Schedule of customer fees

Key Performance Indicator Metrics

  1. Historical KPIs
  2. Projected KPI schedule

Exit Opportunities

  1. Any acquisition offers made
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Product and Technology Documents:

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Product Related Specifications

  1. Current Product Design specs
  2. Product Development Road Maps
  3. Prototypes/Wireframes

Process Related Documents

  1. Description of quality control processes
  2. List of employees with editing rights to source code
  3. Copies of internal documentation
  4. Document of software licenses maintained
  5. List of Third-Party tools utilized
  6. Business Continuity plans

Software Development Models/Systems

  1. Description of outsourced software development
  2. Documentation of outsource agreements
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Company and Market Overview Documents:

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Teaser Documents

  1. Internal Presentation Materials
    1. Company
    2. Products
    3. Opportunity
    4. Investment Highlights
  2. Product Brochures / Promotional Materials
  3. Internal studies on competition and market

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