Startup due diligence for new angel investors
A practical early-stage diligence process covering founders, customers, market, product, company records, financing, and risk.
Match diligence to stage and check size
Pre-seed diligence cannot resemble a late-stage audit because the evidence does not exist. Focus on the claims most important to the investment case and verify what can be verified without creating unnecessary work.
Write the investment thesis and the conditions that would invalidate it before becoming attached to the deal.
Keep in mind
- Verify identity, incorporation, ownership, and material agreements.
- Speak with customers when appropriate and permitted.
- Document unresolved risks and decide whether they are acceptable.
Review company and financing basics
Understand the legal entity, capitalization table, founder vesting, intellectual property assignment, debt, prior instruments, option promises, and the terms of the current round.
Terms change outcomes. Review valuation caps, discounts, conversion mechanics, pro rata rights, information rights, liquidation preferences, and any side letters with qualified advisers.
Investigate rather than interrogate
Good diligence is a collaborative attempt to understand reality. Ask founders to explain discrepancies and uncertainty. Notice whether answers become clearer with evidence or more evasive.
References can illuminate integrity and working behavior, but conduct them transparently and respect confidentiality. An investor’s process is also evidence founders use to evaluate the investor.