Due diligence and fundraising are vital to the process of starting a business, whether you are pitching investors or seeking venture capitalists. It is essential that you present a neat, organized view of your business. Making sure that your finances are in order, ensuring you have an up-to-date cap table, and quickly responding to requests from investors are some of the most important aspects of managing fundraising and due diligence processes efficiently.
When investors decide to invest in your business they are attracted by your product's potential and the market opportunities it presents. They also consider the possibility that your business will not achieve its potential. Therefore, they will want to verify the information you supply to them through due diligence, which includes examining evidence and performing a financial analysis. This will give them the confidence that they have made an informed investment decision.
Investors may request documents like documents that confirm commitments from customers, test results that support your performance claims, and market research. In the end, it is vital for startups to be prepared to produce and share all of the information needed when conducting due diligence with investors. A data room like DocSend can aid you in organizing and managing all sensitive documents that investors might require during due diligence. Smart permissions management allows you to allow access only to those who need it.
Investors should also review your intellectual property portfolio as well, making it a part of your due-diligence checklist. In the end you must be able to prove the legality of all of your IP assets, and also disclose any agreements with third parties that could impact revenue.
The amount of documentation that startups need to prepare for due diligence will depend on the stage in which it is. Seed investors and pre-seed investors, for instance may only require minimal documents, like the proforma cap table as well as incorporation documents. However, once you get to due diligence and fundraising processes the priced round stage of fundraising, investors will adopt an a lot more comprehensive approach and will require a full set of financial and legal documents.
While the due diligence process can be lengthy, with proper preparation and a clear understanding of your business it shouldn't be difficult or stressful to navigate. Even if your company hasn't yet had any funds raised It is crucial to remember that fundraising is a continuous and fluid process. Therefore, it is advisable to begin courting investors and establishing relationships with them, and sharing information as time goes by. As the process continues, it is important to keep momentum going and be attentive to investor inquiries so you can successfully close a Series A funding round.