Due Diligence for Series A Startups

This blog will provide you with a comprehensive Series A due diligence checklist covering key focus areas.

As a startup founder, navigating the Series A fundraising process can be exciting and challenging. One crucial aspect of this process is due diligence—the comprehensive assessment of your startup's legal, financial, and operational aspects. To streamline the due diligence process and expedite the closing of your Series A round, it's essential to have all the necessary documentation and information readily available. 

Corporate Records and Charter Documents:

  • Certificates of Incorporation, Certificates of Designation, Rights, and Bylaws
  • All minutes of directors' and stockholders' meetings and written consents of directors and stockholders

Business Plan and Financials:

  • Current business plan and any financial projections
  • Prior year and most recent financial statements
  • Prior years and most recent corporate tax returns (1120)

Intellectual Property:

  • List of trademarks, patents, copyrights, domain names, and relevant filing or registration documentation
  • Documentation of any assignments of intellectual property rights to the company

Security Issuances and Agreements Concerning Securities:

  • Current cap table
  • List of stockholders, including issuance dates and original issuance price
  • List of option holders, including grant dates and exercise prices
  • Copies of agreements related to outstanding options, warrants, rights, or agreements for purchasing or acquiring securities
  • Documents evidencing registration rights or agreements among shareholders
  • Summary of vesting schedules for stock or options subject to vesting
  • Agreements relating to the voting of securities and restrictive share transfers
  • Evidence of qualification or exemption under federal and state securities laws

Material Agreements:

  • Standard terms of service/terms of use for customers
  • Agreements, contracts, or transactions involving obligations or payments exceeding $25,000
  • Personal property leases and real estate agreements
  • Documents evidencing indebtedness, mortgages, liens, loans, and encumbrances
  • Insurance policies and a summary of such policies
  • List of officers and directors, noting any deviations from full-time commitment
  • Other relevant documents listed in our guides

Information Regarding Disputes and Potential Litigation:

  • Correspondence or documents relating to pending or threatened legal actions, suits, investigations, or claims
  • Correspondence or documents relating to allegations of infringement of proprietary rights
  • Correspondence or documents relating to labor agreements, disputes, or actions

Information Regarding Employees and Employee Benefits:

  • List of employees and consultants, including relevant details such as title, salary, and classification
  • Employee handbook and benefits provided to employees
  • Agreements with officers, directors, and affiliates, including employment agreements and severance provisions
  • Forms of agreements used in connection with stock option plans
  • Documents or information relating to loans made by the company to employees, directors, or consultants

The above-listed documents are preliminary and may change depending on the investor’s due diligence process. For an exhaustive list, please check our full guides here.

Equity Grants: Ensure that all pending or promised equity grants are addressed before starting the Series A process to avoid potential complications related to valuation changes and strike prices.

The Series A due diligence process is vital in securing funding for your startup. By proactively preparing the documentation and information outlined in this checklist, you can streamline the due diligence process and significantly reduce the time it takes to close your Series A round. Remember, having all the required information readily available in a centralized data room before signing a term sheet can save valuable time and make a positive impression on investors.

By meticulously organizing your corporate records and charter documents, business plan and financials, intellectual property portfolio, security issuances and agreements, material agreements, information on disputes and potential litigation, and details about employees and employee benefits, you demonstrate professionalism, transparency, and readiness for investment.

Navigating the Series A fundraising journey can be complex, but being well-prepared and organized with the information and documents mentioned in this checklist will help you overcome potential hurdles and increase your chances of success. Good luck with your Series A funding and the growth of your startup! Contact us if you need any help as part of the fundraising process.

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