Back to Blog

Use Our Due Diligence Questionnaire To Prepare for Fundraising

     

After getting a verbal commitment from investors that they will invest in your business, they will want to run a background check on you and your partners. They will want to inspect all aspects of your business and get a fully understanding of what they are getting into before signing the contract.

 

In that case, you will be required to have an intensive due diligence checklist as you don’t want to be the one slowing down the process.

 

QUESTIONS STARTUPS SHOULD LOOK OUT FOR WHEN ENTERING DUE DILIGENCE:

 

  1. Do you have all the corporate records?
  2. Do you have all the stockholder information?
  3. Do you have all the security issuances?
  4. Are all the financing documents available?
  5. Do have all the management and employees manual?
  6. Are there any other material contracts?
  7. What are the sales and marketing strategies?
  8. Do you have details of other real properties owned by the company?
  9. Do you have all the details of IT systems and networks?
  10. What are the environmental concerns in your business?
  11. Governmental regulations and filling details available?
  12. Do you insurance details?
  13. Do you have taxes details?
  14. Do you have all the litigation and audit details?

Using our due diligence checklist as a guideline, startups will be able to answer the above questions easily. It helps them to know what they should look out for in each question. Here is a summary of our due diligence checklist:

 

CORPORATE RECORDS: Organizational documents of the company such as limited liability company agreement. Look out for communication with stockholders, minute’s book of the company, history of the enterprise with predecessors, list of all corporation and partnerships, places where the business is allowed to conduct business and descriptions of all transactions between company and stockholders and any other party.

 

STOCKHOLDER INFORMATION: Look out for stock certificate books, agreements to offer stock and contracts or instruments that may hinder the company from paying dividends.

 

SECURITY ISSUANCES: Equity financing of the company documents, any convertible debt financing of the company documents, common stock certificates samples and warrants, agreements and documentation of transactions involving company’s security, forms D and any other government permits and consents.

 

FINANCING DOCUMENTS: Outstanding short and long term debts, outstanding interest rates, outstanding commitment letters, company’s borrowing agreement, bank letters and copies of payable and receivable notes.

 

MANAGEMENT AND EMPLOYEES MANUAL: Manuals covering employee’s policy, number, management by departments, union of contracts and copies of any national labor review board, absenteeism, and disciplinary actions.

 

MATERIAL CONTRACTS: Contracts with customers, company’s suppliers, partnerships, and installments agreements.

 

SALES AND MARKETING: Company’s competitors, marketing agreements with distributors and sales representatives and the list of third party developers.

 

REAL PROPERTIES: Properties owned by the corporation, certificate of occupation, surveys of the company and list of material encroachments.

 

IT SYSTEMS AND NETWORK: List of company’s sites, company’s IT Windows based, e-mail and calendaring systems, company’s website backup solutions and company’s interaction with customers.

 

ENVIRONMENTAL CONCERNS: Toxic chemicals used in production, environmental Production Act, health and safety compliance, and copies of internal memoranda on hazardous materials.

 

GOVERNMENT REGULATIONS AND FILLING: Materials inquiries by federal and local government’s copies, contacts between company and government and government licenses and permits.

 

INSURANCE: Policies of insurance, claims, premium payments and self-insurance copies.

 

TAXES: Tax returns for all open years, correspondence between the business and internal revenue service.

 

LITIGATION AND AUDITS: All litigation lists, letters sent to auditors from counsel and warrant claims description.

 

However, this is a summary, read full due diligence checklist here.

Download 8 myths about investors