After initial interest the investor often proceeds through due diligence and will ask for documents on your business including legal entity filings, articles of incorporation, patent filings, tax returns, and so forth.
In any due diligence exercise ninety five percent of the documents will come from the startup any way therefore, it makes sense to start building what is called a due diligence box or data room, from the very start.
There are many checklists on the web that you can download and use as a guide to build out your list. For early stage startups there will be a number of documents which simply don’t exist – for example, if you don’t have a formal board of directors there are no board of director reports to include in the data room.
One final word about due diligence — it’s for serious investors only. A serious investor has had several discussions with you before asking for the due diligence and there’s at least a soft circled investment figure on the table. If the investor is not that far along then it’s premature to hand over data room access. Continue discussing their interests and concerns before proceeding.
Hall T. Martin is the founder of TEN Capital and a builder of entrepreneur ecosystems by startup funding through angel networks, funding portals, syndicates, and more. Connect with him about fundraising, business growth, and emerging technologies.