This document discusses the importance of investor due diligence for startups seeking funding. It emphasizes the need to have key documents and information in order, such as financial records, capitalization tables, contracts, and intellectual property files. The document outlines the various areas that investors will examine in depth, including personnel, products, market analysis, and business metrics. It provides a checklist of necessary corporate records, security issuances, agreements, intellectual property documents, and other materials required for the due diligence process when investors are evaluating whether to finance a company.

1. 1
Investor Due Diligence:
Getting Your Ducks in a Row
#DueDiligence
SEEDCHANGE

2. 2
“Startups face a huge burden in
today’s economy, often having to
choose between funneling resources
toward creating their goods and
services or managing the often
complex accounting, tax and
financial strategy planning
necessary to run a successful
business.
~ David Ehrenberg,
Founder and CEO
Early Growth Financial Services

3. Kevin Smith
Founder and CEO
SEEDCHANGE

4. Investor Due
Diligence…
NOT just the
final hoop
4www.seedchange.com www.earlygrowthfinancialservices.com

5. Before you even think about reaching
out to investors, button up…
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• Business entity –
Delaware C Corp
• Business model
• Scrubbed financials
• Thoughtful
projections
• Cap table prepared
and clean
• Employee agreements
• Partner agreements
• Customer agreements
• IP

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• Gloves are off
• On-site
• All employees
• Vendors
• Customers
• Founder background check
Due diligence begins…

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8. Internal communication
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• No surprises
• Answer questions
• Clearly explain pros and cons of
investment
• Bringing team up-to-date
• Document business processes
• Integrated team view

9. What do investors look at?
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10. Personnel review
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• Your people are your company, so this is a
priority for investors
• Relationships among founding team members
• Resolve outstanding team issues

11. Product review
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• Product
• Product road map
• Customer feedback
– Quality issues
– Feature problems
– Customer service

12. Market analysis
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• Opportunity size
• Validation of initial assessment
• Trend analysis
• Barriers to entry / competition

13. T – R – A – C – T – I – O – N
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• User acquisition rates
• Sales activity
• Distribution channels
• CAC (Customer Acquisition Costs)

14. Full disclosure?
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15. Documentation: Required Documents
Necessary documentation and information for due diligence
www.seedchange.com www.earlygrowthfinancialservices.com

16. Corporate Records & Charter Documents
• Certificate of Incorporation
• Articles of Incorporation (and
amendments)
• Certificates of Designations,
Rights, etc.
• Bylaws
• Minutes of directors' and
shareholders' meetings
• Written consents of directors
and shareholders
www.seedchange.com www.earlygrowthfinancialservices.com

17. Security Issuances
• Company shareholders and option holders (showing
vesting & security exemptions)
• Outstanding options, warrants, rights
• Registration rights for company's securities
• All voting trust instruments, buy-sell agreements, voting
proxies or other shareholder agreements
• All permits and filings regarding securities issued by
company
www.seedchange.com www.earlygrowthfinancialservices.com

18. Material Agreements
• Obligations / payments in excess of
$10,000
• Personal property leases
• Company liabilities
• Property / asset related documents
• Loan or advance documents
• Employment agreements
• Insurance policies
• Employee benefit plans
• Any judgment by which company is
bound
• Form of Proprietary Information
and Invention Agreements
www.seedchange.com www.earlygrowthfinancialservices.com

19. Intellectual Property
• Foreign and domestic patents
and patent applications
• Trademarks, trade names,
service marks, domain names
or copyrights Proprietary
processes
• Licensing agreements (to and
from)
• Third-party correspondence
regarding potential
infringement of IP rights
www.seedchange.com www.earlygrowthfinancialservices.com

20. Disputes and Litigation
• Pending action, suit, proceeding,
investigation
• Allegations of company's
infringement of proprietary
rights of others
• Labor agreements or actions
www.seedchange.com www.earlygrowthfinancialservices.com

21. Other Essential Documentation
p21
• Securities or ownership interests in
other companies
• Certificates of qualification from all
states or foreign countries in which
company is qualified to do business
• All licenses, permits or government
authorization
• Company’s bank accounts, lines of
credit, etc.
• Current or past officers, directors,
or key employees who own direct
beneficial interest in any
competitor
• Powers of attorney executed by
company
www.seedchange.com www.earlygrowthfinancialservices.com

22. Q&A and Thank You!
www.seedchange.com
info@seedchange.com
1.877.711.9883
@seedchange
www.earlygrowthfinancialservices.com
contact@earlygrowthfinancialservices.com
415.234.3437
@EarlyGrowthFS
SEEDCHANGE