Due Diligence

Due diligence is the process of thoroughly investigating a business or investment opportunity before completing a transaction. It helps buyers, investors, or partners understand what they are getting into, identify risks, and verify claims made by the target company.

Types of Due Diligence

Type	Focus Areas
Financial DD	Financial statements, projections, tax returns, working capital
Legal DD	Contracts, litigation, IP, compliance, corporate structure
Commercial DD	Market size, competition, growth strategy, customers
Technical DD	Technology stack, code quality, scalability, security
HR DD	Employee contracts, benefits, culture, key personnel
Tax DD	Tax compliance, liabilities, structuring

Due Diligence Process

1. Planning: Define scope, objectives, and timeline
2. Information Request: Send DD checklist to target company
3. Data Room: Access organized documents and information
4. Analysis: Review and verify all information
5. Management Interviews: Meet with key team members
6. Site Visits: Visit offices/facilities if applicable
7. Findings Report: Document issues, risks, and recommendations
8. Negotiation: Address findings in deal terms or price

Common Due Diligence Documents

• Financial statements (3-5 years)
• Tax returns and filings
• Cap table and shareholder agreements
• Material contracts (customer, vendor, employment)
• IP documentation (patents, trademarks, copyrights)
• Corporate governance documents
• Litigation and legal compliance records
• Insurance policies
• Employee records and benefits

Red Flags in Due Diligence

• Inconsistent financial records
• Undisclosed liabilities or litigation
• Unclear IP ownership
• Customer concentration risk
• Key person dependency
• Regulatory non-compliance
• Related party transactions
• Declining financial performance

Startup Due Diligence Timeline

• Seed Stage: 1-2 weeks (lighter DD)
• Series A: 2-4 weeks
• Series B+: 4-8 weeks (more comprehensive)
• M&A: 1-3 months (extensive)