Due Diligence
The investigation process investors conduct before committing to an investment.
Definition
Due diligence (DD) is the formal investigation that follows a signed term sheet. Investors verify the claims you've made during the fundraise: financial records, customer references, legal compliance, IP ownership, team backgrounds, market analysis, and technical architecture. DD typically takes 2-6 weeks and involves lawyers, accountants, and sometimes technical experts.
There are three types: business DD (market, product, customers), financial DD (revenue, expenses, projections), and legal DD (IP, contracts, compliance). Failing DD can kill a deal, so preparation is critical.
Why it matters for founders
Due diligence can surface issues that reduce your valuation, add unfavorable terms, or kill the deal entirely. Having clean records, clear IP ownership, and verifiable metrics from the start makes DD smooth and builds investor confidence.
Example
A SaaS startup in DD for a $10M Series A. The VC discovers that 60% of revenue comes from one customer (concentration risk), the CTO never signed an IP assignment agreement, and the reported churn rate excluded annual customers. The VC reduced the offer by 30%.
How Foundra helps
Foundra's structured approach to validation creates organized, verifiable evidence that streamlines due diligence and builds investor confidence.
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Related terms
Term Sheet
A non-binding document outlining the key terms of a proposed investment deal.
Series A
The first major institutional venture capital round, typically $5M-$20M, funding the transition from product-market fit to scalable growth.
Pitch Deck
A presentation (usually 10-15 slides) that tells your startup story to potential investors.
Cap Table
A spreadsheet showing who owns what percentage of your company.