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Due Diligence Checklist

Due diligence is the research and verification process that an investor will go through before actually giving you the money. Due diligence with a venture capital firm can be an extensive process. The venture firm might contract with an expert with experience in your industry to evaluate your team, technology, customer relationships, partnerships, etc. Due diligence with an angel investor may be less intense and less structured.

But even for an angel round, it’s a good idea to start organizing this kind of information early. It will save time and hassle when your raising money.

The web site has a very good due diligence checklist . Here is just part of that list:

1. Corporate Documents:

  • Articles of Incorporation
  • Bylaws and operating agreements
  • Shareholder agreements
  • Minutes of Board of Directors and Shareholder meetings
  • All documents furnished to shareholders and directors
  • Certificates from all states and jurisdictions where the company does business

2. Previous Securities Issuance:

  • Copies of stock certificates, warrants and option agreements
  • Complete Stockholder contact information
  • Number of outstanding shares, dates of issuance, and percent ownership
  • All outstanding preferred stock, including covenants
  • All outstanding options, warrants or convertible securities
  • Employee stock benefit programs; stock options, stock purchases or others

3. Financial Information

  • Audited financial statements since inception
  • Income statements, balance sheets, cash flow statements
  • Records of all changes in equity position
  • Accounting methods and practices
  • Company prepared monthly or quarterly statements
  • A three year budget and financial projections
  • A complete and current business plan
  • Accounts receivable aging and accounts payable aging
  • Product or service pricing plans and policies
  • Revenue and gross margins by product or service
  • Extraordinary income or expense details
  • Explanation of any material write-downs or write-offs
  • A summary of all bad debt experiences
  • Details of any outstanding contingent liabilities
  • Accountant report on the company’s financial condition

4. Tax Status

  • Federal and state income tax returns for the last three years Detail of any tax audits

5. Contracts and Agreements

  • List of Bank and non-Bank lenders
  • Joint venture and partnership agreements
  • License agreements
  • Purchase agreements
  • Liens, equipment leases, mortgages or any other outstanding loans
  • Insurance contracts and agreements
  • Contracts with suppliers, vendors and customers
  • Any additional agreements or contracts relevant to the business of the company

Other categories in the list include:

  • Governmental Regulations Related Documents
  • Litigation
  • Products and Services
  • Marketing
  • Management and Personnel
  • Property and Equipment
  • Research & Development
  • Other Company Information