What gets checked, what usually goes wrong, and why being ready is itself a signal.
6 min read
Diligence begins after the term sheet and typically runs three to eight weeks. It is a verification exercise, not a re-evaluation: the investor has decided they want to invest and is now checking that what you said is true and that nothing in the company is broken. Almost nothing here is a surprise, which means almost all of it can be ready months early.
What gets checked
Corporate: incorporation documents, the full cap table, share certificates, board and shareholder resolutions, statutory registers, and every prior financing document.
Financial: audited statements, management accounts, the bank statements behind them, revenue recognition, and the GST and TDS filing history.
Legal: customer and vendor contracts, employment agreements, the ESOP plan and its grants, and any litigation.
Intellectual property: who owns the code. Founder and contractor IP assignments are the single most common gap.
Technical: architecture, security posture, key dependencies, and a look at the codebase.
Commercial: reference calls with your customers, which is the part founders underestimate most.
Where it goes wrong
A cap table that does not reconcile with the statutory registers — usually an old verbal promise nobody documented.
Contractor-written code with no IP assignment.
Revenue counted differently in the deck than in the accounts. Reported ARR that includes one-off implementation fees is the classic.
Missing board resolutions for past share issuances, which turns into weeks of retrospective paperwork.
An ESOP pool granted informally over email.
Being ready is a signal
A founder who answers a diligence list in three days is telling an investor something about how the company is run that no slide can. The reverse is also true, and it is the point at which deals go quiet without ever being formally declined.
Do a self-diligence pass a quarter before you raise. Find your own gaps while fixing them is cheap and unobserved.
General information for founders, not legal, tax or financial advice. Fundraising documents are binding in ways that are not obvious from reading them — take professional advice on anything you are about to sign.