Due Diligence Overview
Financial due diligence typically takes 4-8 weeks for Series A. Investors will scrutinize every number, transaction, and assumption. Being prepared accelerates the process and builds investor confidence. A messy due diligence can kill deals or significantly reduce valuation.
Financial Documents Checklist
- Audited financial statements (last 3 years or since inception)
- Monthly management accounts (last 12-18 months)
- Revenue breakdowns by product/customer/geography
- Cash flow statements (actual + projected 24 months)
- Balance sheet with detailed schedules
- Burn rate analysis and runway calculations
- Bank statements and reconciliations
- Accounts receivable aging report
- Accounts payable aging report
- Inventory reports (if applicable)
- Financial projections (3-5 years with assumptions)
- Cap table (current + fully diluted)
- ESOP pool details and allocations
- Related party transactions disclosure
Tax & Compliance Documents
- Income tax returns (last 3 years) with acknowledgments
- Tax assessment orders and pending appeals
- GST returns (GSTR-1, 3B) for last 24 months
- TDS returns and compliance certificates
- Transfer pricing documentation (if applicable)
- Professional tax registrations and returns
- PF/ESI returns and compliance status
- Any notices from tax authorities and responses
- Advance tax computation and payments
- Tax litigation status and provisions
Legal & Corporate Documents
- Certificate of Incorporation
- Memorandum and Articles of Association
- Shareholder agreements and amendments
- Board resolutions (significant decisions)
- Share certificates and transfer documents
- Previous funding round documents (if any)
- Employee agreements and offer letters
- ESOP scheme documents and grant letters
- Intellectual property assignments from founders/employees
- Major contracts (customers, vendors, partnerships)
- Property agreements (lease/purchase)
- Insurance policies
- Litigation/disputes disclosure
Data Room Organization
Create folders in this hierarchy for easy navigation:
- 1. Corporate / Legal / 1.1 Incorporation Docs / 1.2 SHA & Agreements / 1.3 Board Minutes
- 2. Financial / 2.1 Audited Financials / 2.2 Management Accounts / 2.3 Projections
- 3. Tax & Compliance / 3.1 Income Tax / 3.2 GST / 3.3 TDS
- 4. Operations / 4.1 Customer Contracts / 4.2 Vendor Agreements
- 5. HR / 5.1 Employee Agreements / 5.2 ESOP Documents
- 6. Intellectual Property / 6.1 Trademarks / 6.2 Patents / 6.3 IP Assignments
Common Red Flags to Avoid
- Revenue recognition issues or aggressive accounting
- Customer concentration (>30% from single customer)
- Related party transactions without proper documentation
- Pending litigation not disclosed upfront
- Tax notices or compliance gaps
- Mismatch between bank statements and books
- Unsigned or missing employee IP assignment agreements
- Unclear cap table or disputed shareholding
- Burn rate higher than projected to investors
- Inconsistencies between pitch deck and actuals