Founders prepare for the pitch and improvise the diligence. It should be the other way round. A well-run diligence closes a round; a chaotic one loses momentum, and momentum is most of what a term sheet is made of.
Statutory records first
Board minutes, general meeting records, statutory registers and share transfer documentation are the first request in almost every data room. Reconstructing three years of board process after the fact is difficult and immediately visible to anyone experienced.
Related party transactions
Rent paid to a promoter-owned premises, a loan from a family member, purchases from an associate concern — none of these is objectionable in itself. All of them need to be documented, approved and disclosed. Undisclosed ones are found, and their discovery colours everything else in the file.
The five that stall deals
- Cap table with no supporting share transfer or allotment paperwork
- Key customer contracts that are verbal or expired but still being performed
- Intellectual property registered in a founder's personal name
- Employee agreements without confidentiality or IP assignment clauses
- Statutory dues with an open dispute and no provision in the books
Run the diligence on yourself
Six months before you intend to raise, have someone independent ask the questions an investor will ask. Fix what can be fixed, provide for what cannot, and prepare an explanation for the rest. Surprises in a data room are expensive; disclosed issues rarely are.
