Due Diligence Checklist for Early Stage Investors
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Due Diligence Checklist for Early Stage Investors
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www.seraf-investor.com
Anyone is free to use this Google Sheet. It is designed to be used in conjunction with our companion eBook.If you want to learn more about angel investing, check out these other resources.The Due Diligence Checklist for Early Stage Investors is designed as a quick reference guide to help steer you through the various aspects of diligence. By using this checklist, you can ensure that your process covers the major areas of diligence. The questions here are optimized for evaluation of very early stage technology companies; supplemental questions may be appropriate for use with later stage companies and life sciences companies. This Google Sheet offers suggested guidelines. It does not purport to be comprehensive, so use your judgement when conducting your due diligence.
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Stones Unturned: An Investor's Guide to Due Diligence in Early Stage Companieshttps://seraf-investor.com/compassIf you like this checklist, share this link! http://bit.ly/2lSfyFn
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Diligence TopicInformation RequestTasksKey Questions
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Leadership Assessment
Resumes for key leadership team membersReview resumesDoes the CEO possess the experience and leadership abilities to succeed?
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Professional references for key team membersInterview references (see interview guidelines)Do they have skills for where they are going, as opposed to where they have been?
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Resumes and contact info for board members and advisorsGather additional information from network as available (asking around, checking LinkedIn - anything to find blind reference checks)Do the CEO and team have a proven track record?
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Assign team member(s) to spend time with CEODoes the team possess the appropriate balance of experience and skill sets?
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Assess CEO and team for leadership, integrity, track record, required competenciesAre the board members and advisors suitable and committed?
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Assess suitability and commitment of board members and advisorsWhat key hires are needed to address gaps?
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Technology, IP and Product RoadmapDescriptions of technology and productReview information and meet with technical teamIs the technical team qualified and experienced?
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Relevant technical publicationsAssess critical technologies, tool choices, software architecture choices, scalability of solutionHow strong are the technology and IP positions?
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Patents and patent applicationsAssess IP defensibilityIs the product roadmap achievable?
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Related IP info (defense: Freedom to Operate (FTO)?, offense: enforceability?)Conduct additional secondary research as neededWhat are the remaining risks related to technology, IP and product roadmap?
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Product roadmap with key milestonesConduct additional expert interviews if neededAre their superior technologies on the near term horizon?
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Competing technologies and commercialization statusAssess remaining technical risk, IP defensibility, competitive technical position
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Regulatory StrategyRegulatory strategy, if relevantReview regulatory strategyIs the regulatory strategy well thought through and feasible?
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Status of dialogue with regulatory authorities and/or consultants, copies of relevant communicationsInterview regulatory expertsAre the company's financial resources sufficient to implement the regulatory plan?
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Assess comparable regulatory pathways for other products as appropriateAre assumptions about partners/acquirors' roles in the regulatory plan reasonable?
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Assess regulatory climateWhat are the remaining regulatory risks?
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Customer Need and Go-to-Market PlanGo-to-Market plan with key milestones and granular detail on sales approachReview information and meet with marketing and sales teamIs the Go-to-Market plan reasonable?
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Partner identification and relationship statusInterview customers, partners, prospects as appropriateIs the sales pipeline adequate, and are key metrics for adoption rate, conversion rates, etc. conservative?
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Sales pipeline by stage, factored to be truly realistic and achievableGather information on industry comparables as appropriateDo customers confirm the need and likely adoption rates?
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Any current marketing, joint venture, distribution agreementsCollaborate with financial team to assess revenue and pricing modelBeyond verifying some demand, do we understand the customers buying priorities? Is this product/service a "Nice to Have" or a "Need to Have"?
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Customer, prospect, and partner references (see guidelines for interviewing customers)What are the major risks in marketing awareness, customer adoption rates and sales cycle?
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Uniqueness and CompetitionList of current and prospective competitorsGather additional competitive intelligence as neededIs the company well positioned with respect to current and likely future competitors?
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Competitive analysis including market share, relative strengths and weaknessesAssess competitive environment, competitor positions, barriers to entryIs the founding team well-informed about their market and industry? Do they have a good competitive sense, or are they unaware of key issues
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What are the major risks in marketing awareness, customer adoption rates and sales cycle?
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Market Size and Market OpportunityMarket estimates from the company, properly segmented down to a reasonable addressable market segmentGather additional market data as neededAre the top-down and bottoms-up market estimates consistent and attractive?
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Published market data and industry reports by segment, industry vertical, and/or geography as relevantInterview industry experts as neededAre the market share projections reasonable?
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Assess market opportunity and product/market fitWhat are the remaining risks in market development?
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Assess company's market estimates and share assumptions
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Financial Projections and Funding StrategyCurrent balance sheetAssess balance sheetDoes the balance sheet make sense, and are there any showstopper issues?
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Historical financialsAssess historical and projected financials including revenue model, assumptions, use of fundsAre the financial projections reasonable and conservative in light of past performance?
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Model of projected financials with sensitivity analyses on key assumptionsConduct sensitivity analyses on key assumptionsWhat are the implications of variances in key assumptions?
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Fundraising historyAssess future financing needsIs the future financing risk manageable?
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Use of funds - past and projectedWhat are remaining financial risks?
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Future financing needs and assumptionsAre the assumptions about scaling expense (e.g. G&A, etc.) reasonable, or is the model unrealistic?
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Exit StrategyExit strategyDiscuss exit scenarios with CEOIs there alignment with the CEO and team on exit goals?
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Likely acquirers and comparablesAssess realism of exit strategyIs the exit strategy reasonable?
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Develop reasonable exit scenariosWhat exit multiples can be predicted under representative scenarios?
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Model exit multiples under representative scenariosDoes the CEO know people in the industry? Is she a networker who will make the relationships and do the thought-leadership necessary to get a buyer interested?
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Company Structure, Deal TermsDocuments of incorporationConfirm legal entity (C Corp, state of incorporation)What changes to legal structure need to be undertaken?
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Capitalization TableReview existing investors, classes of stockAre there any showstopper issues (pre-existing agreements, complex shareholder structure, high vendor payables, loans to management, informal promises or undocumented issuances of stock?)
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Proposed deal termsAssess deal termsWhat terms should be changed/negotiated (e.g., valuation, employee stock option pool, etc.?)
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www.seraf-investor.com
This Due Diligence Checklist is brought to you by Seraf, which is committed to increasing the professionalism of early-stage investing. Seraf is a web-based portfolio management tool for investors in early stage companies. Seraf’s intuitive dashboard gives investors the power to organize all of their early stage activities in one online workspace. To learn more, visit Seraf-Investor.com.
If you like this checklist, share this link! http://bit.ly/2lSfyFn
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