The investigation a potential investor or acquirer conducts before closing a deal — reviewing corporate documents, cap table, contracts, IP, and financials.
Due diligence is the process by which investors or acquirers verify the claims a company has made before finalizing an investment or acquisition. It's the investor's way of checking their work. In a seed round, diligence is often light — checking corporate formation documents, confirming the cap table, reviewing any significant contracts. In a Series A or acquisition, it's comprehensive and can take weeks.
A typical startup due diligence checklist includes: corporate formation documents (Articles, bylaws, board minutes), cap table (fully diluted), all equity agreements (option grants, SAFEs, convertible notes), all material contracts (customer agreements, vendor agreements, partnership agreements), IP chain of title (who owns the IP and whether it's properly assigned to the company), employment agreements, and financial statements.
Being prepared for due diligence before you start fundraising makes the process faster and builds investor confidence. Surprises during diligence — a founder who didn't sign their PIIA, IP that was never properly assigned, a cap table that doesn't match the actual agreements — can kill deals or result in worse terms. Keeping your corporate records clean throughout the company's life is much easier than cleaning them up when a deal is on the table.