Investor Due Diligence

What investors check before investing: team, market, metrics, legal and technology.

Also known as: investor due diligence, VC diligence, startup diligence

Investor due diligence verifies everything the pitch claimed: team references, customer calls, metrics against raw data, legal (cap table, IP, contracts, litigation), financials, and technical review. It starts the moment interest turns serious and runs parallel to partner meetings — treat every interaction from first call as diligence, because it is.

commercial:  customer calls + churn data + pipeline inspection (is growth real?)
legal:       cap table + IP + contracts + compliance (is it clean?)
technical:   architecture + security + team interviews (does it work, can it scale?)

Diligence kills more deals than partner meetings do — usually over hygiene, not vision: messy cap tables, missing IP assignments, metrics that do not reconcile, evasive answers. Clean companies pass boringly; messy ones generate “just one more check” until momentum dies.

The classic mistakes:

Preparing the data room at term sheet. Scrambling documents mid-diligence stalls everything and signals disorganization. Build the data room before fundraising starts and update it monthly.
Reference roulette. Offering only friendly names while investors back-channel independently. Assume every claim gets checked with someone you did not nominate — keep the story consistent everywhere.
Metric definitions shifting. MRR, churn and growth computed differently per audience unravels under inspection. Fixed definitions, reconciled to raw data, shown consistently (metric honesty).
Hiding known issues. Discovered-by-them problems (lawsuit, churn spike, founder dispute) kill trust instantly. Disclose early with context and remediation — surprises detonate, disclosures merely cost.
Treating diligence as one-sided. You are also diligencing the investor (reserves, behavior in downturns, founder references). Ask their portfolio CEOs about the worst moments, not the best.

Operate always-ready: clean cap table, assigned IP, reconciled metrics, organized room. Diligence-ready is simply well-run, documented continuously rather than assembled in panic.