Due diligence

The investigation a serious investor or acquirer runs before completing a deal — financial, legal, technical, commercial.

Example

Cap table, contracts, IP assignments, financials, customer references and a code review.

Important

Diligence surfaces every shortcut. Undocumented equity promises, missing IP assignments and unsigned contractor agreements are the classic deal-killers.

Related terms

• Term sheet — A short, mostly non-binding document setting out the main terms of an investment before the full legal documents are drafted.
• Data room — A single organised, access-controlled place holding every document an investor or acquirer needs.
• IP assignment — A signed agreement transferring ownership of work product to the company.

Lessons that explain it

• What investment banks actually do — Advanced, and mostly not relevant to you yet. What they are, and the one situation where a first-time founder might meet one. (10 min)
• Owning your own product — The single most common thing to derail due diligence. If contractors built part of it without an assignment, you may not own it. (12 min)
• When to talk to a lawyer or accountant — Which situations genuinely need a professional, which do not, and how to spend the least money getting the most protection. (10 min)
• How an acquisition actually runs — Approach, LOI, diligence, negotiation, close. The exclusivity clause is where founders lose their leverage. (12 min)
• The fundraising process end to end — Prepare, list, introductions, first meetings, partner meeting, diligence, term sheet, legals, close. Three to six months, run as a process. (15 min)
• Due diligence — What investors check before wiring, and the four things that most often kill a deal at this stage. (12 min)

All 176 terms in the Founder glossary