Investment Due Dilligence Checklist
We have put together a list of things you could look into / ask the founders for, before making an investment. This list is not exhaustive by any means, and at the end of the day your decision to invest will be very personal, but we hope this gives you a head start.
STEP ONE - Before going any further, ask yourself:
Does it meet my investors thesis?
Do I understand the vision?
Do I like the founders?
Do I like their storytelling?
Are the deal terms reasonable?
STEP TWO - Deep dive into the details:
What are the key areas of risk that I need to accept?
Is the founding team capable and motivated?
How aligned am I with the founders and the mission/ values of the company?
Are they solving a real problem? Is there real market-demand? Is there any validation of this?
Does the company have the right initial strategy for selling to the customer and a plan for doing it at scale?
What is the status of IP applications (if relevant), what is protectable or what are their barriers to entry?
Will the company have a long enough runway to keep them going until their next fundraise or break-even point?
What did the company raise previously at what valuations? What does the cap table look like today?
After digging into the financial model do I understand the key assumptions and near term milestones for this current round of financing?
Do they have a clear and focused roadmap of activity for the next 12 months?
What is their long-term model for funding, how will this impact investors in this round?
Who are their current competitors and what might the market look like in 5 years?
What is the long term potential for the company based on the addressable market opportunity today and in the near future?
What is the exit potential & timeframe? i.e 10x in 6 years
How do the deal terms, funding strategy and exit opportunities combine to produce a reward that justifies the risk of an early stage investment?
STEP THREE - Check important documents
Company Registration Number
Registered address
Trading address
Full Business Plan
Advance assurance for SEIS / EIS tax relief
Financial Forecasts for at least 3 years
Historical management and/or audited accounts, if applicable
List of Directors and their previous experience
Declaration of Directors interests
For the Directors and any shareholder owning more than 20%: details of special investigation in the past ten years, or current special investigation by any regulatory body, government body or other authority, or conviction of any criminal offence (other than motoring offence)
List of current shareholders and their holdings
Current Articles of Association
Shareholders Agreements
Any other agreements that control or influence the running of the Company
Details of any pending litigation
Intellectual property schedule together with details of any patents, trademarks, copyright that are material to the business, ownership of such IP, and details of any licences, licences etc
Commercial agreements (both in place and pending) with customers, partners and suppliers
Details of any leases or rental agreements for any premises
Copies of contracts of employment and director’s service agreements
Details of banking or other financial arrangements together with any loans, mortgages or other borrowing arrangements in place or anticipated
A statement of affairs with HMRC
A statement of affairs with other regulatory bodies that impact the business.
Whilst you can outsource some of the technical stuff to a solicitor or accountant, there is no substitute for doing your own due diligence. Talk to people they work with, talk to their customers - do your homework. It's also a good idea to meet the founders in a relaxed setting and get to know them as individuals. If you like the idea but you don’t like the people - walk away.
