Due Diligence

TL;DR

The investigation an investor performs to verify the claims in the pitch and assess all material risks before signing a term sheet or wiring funds.

Due diligence covers commercial diligence (market, customers, competition), financial diligence (financials, cap table, projections), legal diligence (contracts, IP, employment), technical diligence (architecture, security), and reference diligence (founders, customers, employees). At early stages, diligence is light and fast; at growth stages it can take 6–8 weeks and involve multiple external advisors.

Founders often underestimate how much friction late-discovered surprises (unfiled IP assignments, undisclosed prior commitments) introduce. Pre-empting diligence with a clean data room and proactive disclosure is the cheapest insurance available.

Worked example

Series B diligence over 3 weeks: 8 customer reference calls, 4 ex-employee calls, P&L QoE by an outside accountant ($45k cost), cohort-retention rebuild, code review by an ex-CTO advisor, market sizing rebuild, compete pings to 3 competitors. ~120 founder-hours for 3 weeks.

Common pitfalls

• Hiding problems and being caught in diligence.
• Underestimating how long diligence takes at later stages.
• Failing to brief the team and customer references before they're contacted.

When this shows up in a pitch deck

The deck triggers diligence; diligence then runs in parallel with term sheet negotiation and definitive document drafting.

See Due Diligence in context

Due Diligence shows up most often in these scoring rubrics and investor profiles — jump straight to who cares about it and how to pitch them.

For investor types

• Impact Investor — Mission & Returns

Related terms

• Data Room — A secure shared folder with every document an investor needs for due diligence — financials, contracts, cap table, team info, and customer references.
• Term Sheet — A non-binding document outlining the principal terms of a proposed financing, used to align investor and founder before legal documents are drafted.
• No-Shop Clause — A binding term sheet provision preventing the company from soliciting or accepting competing offers for a defined window after signing.
• Lead Investor — The investor who sets the terms of a round, takes the largest check, and typically takes a board seat or significant governance role.
• Letter of Intent — A non-binding document outlining the proposed terms of a customer agreement, partnership, or acquisition before formal contracts are drafted.

Use this in your next pitch deck

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