Due Diligence Prep Checklist for Venture-Backed Companies

If you're a startup or an established company looking to raise capital or pursue a merger or acquisition, due diligence is an inevitable and crucial step. This process involves a thorough investigation of your business to ensure all legal, financial, and operational aspects are in order. Being prepared can significantly streamline the process and prevent potential roadblocks. At Topo Advisors, we understand the complexities of due diligence and have compiled a helpful checklist to get you started.

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Key Due Diligence Documents You Need to Prepare:

To get ahead of the due diligence checklist, make sure these essential items are in order:

• Board Meeting Minutes: Investors and acquirers will request signed board meeting minutes to document approvals. Any board consents made outside of formal meetings should also be prepared and readily available.
• 409a Valuations: These valuations are critical to ensure that stock options were granted at the correct price. Having up-to-date 409a valuations is vital to avoid slowdowns in the fundraising process.
• Customer and Vendor Contracts: The scope of contract requests varies. For financing rounds, investors may only need contracts from your largest customers or vendors. However, in an M&A transaction, it’s highly probable that all customer and vendor contracts will be requested.
• Historical Financials: Expect requests for your historical P&L (Profit & Loss), balance sheet, and statement of cash flows. These documents provide a clear picture of your company's financial performance over time.
• Financial Forecast: A detailed financial forecast is essential. Investors and acquirers will want to review your assumptions for future growth, gaining insight into your strategic thinking about the business.
• Employee Agreements: You will need to provide all signed employment agreements and disclosures of prior inventions as part of the diligence process.
• Formation and Fundraising Documents: Prepare all prior fundraising and corporate documents. These detail how your company's ownership and governance structure have evolved since its formation.

Why is Early Preparation Key?

Having these documents organized and ready in advance will not only make the due diligence process smoother but also help you avoid potential delays on the back end. Issues identified during due diligence can significantly impact timelines and even deal terms. By proactively preparing, you demonstrate a strong understanding of your business and a commitment to transparency.

While this isn't an exhaustive list, it serves as an excellent starting point for items you'll need for both financial and legal diligence. For expert guidance and a comprehensive approach to your fundraising or M&A due diligence, contact Topo Advisors today.

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