October 26, 2026
Due diligence is the investor's review of your company's legal, financial and commercial records before they invest. At pre-seed and seed it's mostly a document check: formation documents, the cap table and every SAFE, founder stock and 83(b) elections, IP assignments from everyone who built the product, key contracts and financials. If those are signed, organized and in a data room before you start pitching, diligence takes days instead of weeks.
Key takeaways
Investors want to know three things. Is the company properly formed and in good standing? Does it actually own its product and IP? And is the cap table accurate, so they know exactly what they're buying? Everything else, from customer contracts to financials, helps them judge the business, but those three questions are where deals slow down or fall apart.
At pre-seed and seed, diligence is usually light and focused on the legal basics. At Series A, investor counsel does a full review, often with a written request list, and expects answers fast. Investors increasingly use AI tools to review data rooms, so unsigned drafts, mismatched numbers and missing documents get flagged quickly.
This is the core list for a pre-seed or seed round. Add to it as the company grows.
Use one folder per category and only include final, signed versions. See How Do I Keep My Startup Legal Documents Organized? and What Is a Cap Table?.
Yes, at pre-seed and seed. Use view-only sharing, set permissions at the folder level, and share with specific people rather than by open link. At Series A, or in an acquisition, a purpose-built data room is worth it because it gives you access logs, watermarking and the ability to revoke access. Many founders use DocSend or the data room features in their cap table or equity management software.
The same handful of issues come up again and again, and almost all of them are fixable if you find them early.
Missing IP assignments. If a founder, early employee or contractor never signed a CIIAA, the company may not own what they built. Get the agreement signed now, including from founders. See The CIIA Agreement.
Equity that was promised but never issued. An email or offer letter promising a percentage isn't a grant. The board needs to approve it, at today's fair market value, with vesting credit back to the person's start date if that was the deal. See Promising Equity vs Issuing Equity.
Missing 83(b) elections. Investors will ask for proof that each founder filed one. If you can't find yours, talk to your lawyer and tax advisor before the round. See 83(b) Election.
Missing board or stockholder approvals. Stock issued, options granted or SAFEs signed without board approval need to be approved after the fact. Your lawyer can prepare the consents.
A cap table that doesn't match the documents. Every share, option and SAFE on the cap table should tie to a signed agreement and a board approval. Reconcile them before you share the cap table with anyone.
Domain names or accounts in a founder's personal name. Move the registrar account into the company's name and have the founder sign an assignment.
If something can't be fixed before the round, disclose it and explain what you're doing about it. Investors forgive messy paperwork far more readily than they forgive surprises.
Investors and buyers sort what they find into three buckets, and knowing which one you're in tells you how to respond.
Clean-up items are fixed before closing at a known cost and don't change who owns what: a contractor who never signed a CIIAA but will sign now, an option grant that needs board ratification, a cap table that needs reconciling, a domain in a founder's name. Fix them, and show the signed fix.
Issues that change the terms are real risks with a downside someone can measure. A single customer that brings in 40% of revenue and can terminate on 30 days' notice or on a change of control is the classic example. Investors don't usually walk over it. They ask for tighter disclosure, a closing condition such as an amended notice period, or a lower price. A venture round has no escrow to recover from, and a claim against the company after closing partly comes out of the investor's own money, so investors push to fix or price risks before closing rather than rely on a claim later. In an acquisition, the same issues usually become a special indemnity, a bigger escrow or a price cut. See Escrow, Holdbacks and Indemnification.
Deal-breakers have a downside nobody can cap, put ownership in doubt, or take longer to fix than the deal's momentum lasts. A missing invention assignment from someone who built core IP and can't be found or won't sign, stock issued without authority that needs consents the company can't get, and records too unreliable to confirm the fully diluted share count are the usual ones. So is any sign that the revenue numbers aren't real.
When you find a problem, raise it before the request list reaches it. Send investor counsel, or the buyer's counsel, a short written note: what happened, what is true today, the fix, and the date it will be done. "Both contractors will sign assignments by Friday" does more than an argument about whether the issue matters. In a priced round or a sale, also list anything still open on the disclosure schedule, so it's a known exception rather than a later claim.
Include it if any part of it still binds the company, such as exclusivity or confidentiality, or if it matters to the story you're telling investors. If it has fully lapsed and creates no ongoing obligation, you can leave it out. Never leave out a live obligation.
Show that the registrar account is in the company's name, with a screenshot of the account or the registration record. If a founder registered the domain personally before incorporation, add a signed assignment from that founder to the company.
Pick one person to own it, usually a founder, and have them coordinate with your lawyer. Ask the lead investor for their request list early and organize your answers to match it. Respond quickly and completely, and tell the investor in advance if something will take longer. Diligence is often the first project you and a new investor work on together, so it's a good chance to show how your team operates.
Your lawyer's job in diligence is to answer investor counsel's questions, fix gaps in the corporate record, and help you prepare the disclosure schedule.
In a priced round, the stock purchase agreement includes a long list of representations, statements the company makes about itself: that it has no pending litigation, that it owns its IP, that its cap table is accurate, that it isn't in breach of its material contracts. Think of the representations as the investor's questions and the disclosure schedule as the company's answers. Some representations are true as written and need nothing. Others ask for a list, such as every material contract or every registered trademark, and some are true only with exceptions, which the schedule spells out. Read together, the representations and the schedule have to be accurate.
The company drafts the schedule, because only the company knows its own operations. Your lawyer usually sends a shell with a section for each representation and a plain-English explanation of what each one asks, then reviews your answers. Most answers come straight from the data room, so a well-kept one saves days. A SAFE carries only a few short representations and no schedule, so a company's first full disclosure schedule usually arrives with its first priced round, and at a Series A on NVCA documents it is often a bigger job than founders expect. In later rounds, you start from the last schedule and update it.
When in doubt, disclose. If a representation turns out to be wrong and the schedule didn't cover it, investors may have a claim for damages or, in some deals, a right to adjust the price they paid. An exception listed on the schedule is one they accepted when they invested.
Expect a refresh rather than a full review. The investor will want an updated cap table, current financials, any new material contracts or hires since the last round, and confirmation that nothing has changed in the company's legal standing. If your data room has been kept up to date, this takes very little time.
Go deeper: For a full walkthrough, see our Founder Guide to SAFEs and Founder Guide to Series A.
For more on preparing for a round, see SAFE and Series Seed vs NVCA Documents. Getting diligence-ready is part of our General Counsel service. If you'd like help preparing for diligence, contact us.
