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VC Checklist Guide: 74 Items Investors Will Expect in a Data Room

If you’ve gone through startup fundraising, you’ve gone through through ringer. You already know this process SUCKS.

 

The truth is that the more buttoned up you are, the easier fundraising should be.

 

We made this VC checklist guide to help founders do exactly that.

 

Below is a standard venture capital due diligence checklist. This runs through all the pieces of information you’ll need to have ready once you sign a term sheet. Not all investors will ask for all of this information, but our opinion is that you’re better safe than sorry. Having all of this together in one place (in a data room) will save you months of time when it comes time to fundraise.

 

Here is our guide to what founders should include in a venture capital data room.

 

Which parts of due diligence does this checklist include?

Most VC due diligence checklists cover the following areas.

 

Each of these should be a separate folder in your data room. If you are using Notion the most popular hosting tool for startup data rooms), we recommend making each of these section their own separate page so you can embed documents within them.

 

  • Finance: Assessment of financial health where financial statements, assets, debts, cash flows, and projections are looked at
  • Tax: Assessment of a company’s compliance with tax laws where tax returns, audits, and agreements are looked at
  • Legal: Assessment of a company’s legal liabilities, including partnerships and licensing agreements
  • HR: Assessment of a company’s workforce, including the overall benefits, salaries, and bonuses
  • IT: Assessment of a company’s IT infrastructure and cybersecurity risks
  • Products and services: Assessment of offerings to understand how the company makes money from its customer base
  • Marketing and sales: Assessment of the market size, share, and potential trajectory to ensure deal makes strategic and financial sense
  • Competition: Assessment of the competitive landscape to understand how the company is able to differentiate its offerings
  • Team: Assessment of the team background to understand how and why they are the right people to build their business

 

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Financials

 

Financial information is needed when evaluating any investment opportunity. The amount of financial information available and necessary will differ based on the stage of the company.

 

 

Earlier stage companies (pre-seed and seed) will focus less on financial info and more on narrative mainly because of the lack of financial data. As a company grows, the more emphasis is placed on financials, and growth equity investing requires a larger emphasis on historical financials.

 

 

Here are 14 financial items that we have seen as part of VC diligence.

 

  • Financial projections
  • Financial history
  • Income statement
  • Cash flow statements
  • Balance sheet
  • Any additional financial statements
  • Outstanding contracts (for supplies, materials, etc.)
  • Inventory
  • Purchase agreements
  • Accounts payable
  • Schedule of bad debt and/or write-offs
  • Customer information, including contracts and invoices
  • Current accounting system
  • Any outside funding

 

Recommended financial tools: Brex, Stripe, Gusto, Quickbooks, Google Sheets

 

Tax

 

Different funds will have different questions surrounding tax. From our experience, this isn’t a huge part of the diligence process since most of these documents will not be available for early-stage companies.

 

 

Here are five documents that we’ve seen from funds that ask tax-related questions in diligence.

 

  • Federal tax returns from the last three years
  • State and local tax returns from the last three years
  • Any correspondence with tax authorities since the founding of the company
  • Research and development credit reports
  • Last two periods of 409A valuation reports

 

Recommended tax tools: Stripe, Gusto, Quickbooks

Legal

Legal is one of the more important parts of the diligence process. This section should help investors uncover if there are any landmines waiting that they should be aware of before investing.

 

Here are 12 items you should have handy during the legal section of the diligence checklist.

 

  • Location of the startup’s headquarters
  • Antitrust and regulatory issues
  • Compliance with statutes and regulations
  • Environmental issues
  • Insurance policies
  • Licenses and permits
  • Pending litigation
  • Articles of incorporation
  • Bylaws and amendments
  • Annual reports
  • Listing of shareholders and percentages owned
  • Any partnership agreements

 

Recommended legal / incorporation tools: Firstbase, Stripe Atlas

Human Resources

This section of diligence is meant to cover questions about employees, management structure, and benefits. Having a clean HR process in place gives investors comfort that the company is being thoughtful with their hiring and scaling plans.

 

Here are ten items we’ve seen included in HR sections of the diligence process.

 

 

  • Organizational chart
  • Management structure
  • Current employees, employment agreements, and salary schedules
  • Current contractors, consultants, and other outsourced professionals
  • Employee benefits packages
  • Workers comp and unemployment claims history
  • Resumes of employees
  • Nondisclosure agreements
  • Future hiring plans
  • Open offers of employment that have not yet been accepted

 

Recommended HR tools: Gusto

Information Technology

This section is meant to cover all IT-related questions about the business. That includes the current tech stack, licenses owned by the company, and data security practices.

 

Here are six items you will want covered in this section of diligence.

 

  • Software used by the company
  • Software licenses owned
  • Analysis of current IT system
  • Data management and data security practices
  • Agreements with outside IT companies
  • Documentation of disaster recovery plan

 

Recommended software tools: Our top-rated software tools we use to power our business

Products and services

This section covers in detail the different offers the company provides to the market. Good investors will want to know about current and future products and features, unit economics on different products, and market share of each.

 

Here are seven items we’ve seen in the products and services section of venture capital due diligence.

 

  • Current products and services
  • Planned products and services
  • Discontinued products and services
  • Sales volume
  • Profitability of all products and services
  • Market share by product and service
  • Any regulatory documentation related to products and services

 

Marketing and sales

This section should cover everything related to marketing and sales for the company. That includes marketing plans, acquisition funnels, and how much it costs to bring in new business.

 

Here are ten things we’ve seen in this section of the diligence checklist.

 

  • Lifetime customer value (LCV)
  • Customer acquisition cost (CAC)
  • Current marketing strategy
  • Breakdown of traction by marketing tactic
  • Cost to execute the marketing strategy
  • Planned marketing strategy
  • Current sales strategy
  • Current sales processes
  • Cost to execute sales strategy
  • Planned changes to sales strategy

 

Recommended marketing / sales tools: Hubspot, beehiiv, ActiveCampaign

Competition

This section gives more information on who the company competes against. If you don’t think you have any competitors, you’re wrong.

 

The better you can lay out the competitive landscape and how you differentiate, the better you can tie the story together with investors.

 

Here are four things your competition section should include.

 

  • List of primary competitors
  • SWOT (strengths, weaknesses, opportunities, and threats) analysis
  • Current market share
  • Analysis of potential future market share

 

Team

Especially in early-stage seed and pre-seed investing, team makeups play a huge part of the diligence process.

 

There are so many gaps in other places (no metrics, little product data, low awareness) that investors are early-stage VCs are essentially betting on the founding team. The more background you can provide on why your team is the right team to lead the business, the better off you are.

 

Here are six items we recommend including in this section.

 

  • Professional background of the founder(s)
  • Publicly shared personal background of the founder or co-founders
  • Qualitative assessment of the founder’s or co-founders’ passion for the company
  • Exit strategy
  • Geographic location of the founder or co-founders
  • What the founder or co-founders say they want from a VC

 

There you have it.

 

If you’re able to answer these questions, you’re on the right path.

 

Raising capital is never easy, and good investors will want to leave no stone unturned. Hopefully this venture capital due diligence checklist will help your business wow new investors and make it easier for you to raise some funds.