The Due Diligence Checklist Founders Actually Need

A due diligence checklist is the organised set of documents an investor or buyer asks to see before they wire money or sign a purchase agreement. It spans your corporate history, financials, tax position, customers, contracts, intellectual property, technology, and team. Here is the part most founders learn too late: you should build this checklist before you open a round or start a sale, not after a term sheet lands. Diligence is where deals quietly die. Every gap you close early is one a buyer never gets to use to chip your price or walk away. Treat the categories below as the folder structure for your data room, and start filling them now, while nobody is watching the clock.

Corporate and legal

This folder proves the company legally exists, is cleanly owned, and has made its decisions properly. Buyers will not close on an entity with messy governance, because messy governance usually hides messy ownership. The item that trips founders up most is old board consents and minutes: option grants approved in a WhatsApp thread, or verbally, and never papered. If it was not written down, to a buyer it did not happen.

• Certificate of incorporation and every amendment since
• Memorandum and articles of association, or bylaws
• A current capitalisation table listing every shareholder, option, warrant, and convertible instrument, with the fully diluted total
• All prior financing paperwork: SAFEs, convertible notes, share purchase and shareholder agreements
• Board and shareholder resolutions, consents, and minutes for every major decision, including each equity grant
• Register of members and the full share transfer history
• Subsidiaries, group structure, and any dormant entities

Financial

Buyers spend more time here than in any other folder, so the numbers have to reconcile to the cent. A serious acquirer will rebuild your P&L from the bank statements up in a quality-of-earnings review, stripping out one-time items to find your real run-rate margin. If your management accounts tell one story and your bank feed tells another, they stop trusting the whole room. Watch your revenue recognition especially: booking subscription or milestone revenue ahead of when it is actually earned inflates ARR now and detonates during diligence later.

• Profit and loss, balance sheet, and cash flow statements for the last three years, or since inception
• Audited financials where you have them, plus the latest monthly management accounts
• Your financial model with the assumptions written out, not buried in cell formulas
• Monthly revenue, gross margin, and burn history
• Core metrics with definitions: MRR or ARR, net and gross retention, CAC, LTV, and unit economics
• Your revenue recognition policy, plus a bridge from bookings to recognised revenue to cash
• Accounts receivable and payable ageing
• Debt schedule, loan agreements, and any personal guarantees
• Bank statements with a reconciliation tying them to the accounts

Tax and compliance

Unpaid or unfiled tax becomes the buyer’s problem the day they close, so they hunt for it. The exposure founders never see coming is sales tax nexus: hire a remote employee, store inventory, or cross a revenue threshold in a new state or country, and you may owe tax you never registered to collect. Buyers price that exposure straight off your valuation or park it in an indemnity. Contractor classification is the other quiet one. Treat people as contractors who look like employees, and the back taxes and penalties land on the deal table.

• Corporate tax returns and assessments for the last three years
• Indirect tax filings (GST or VAT), payroll tax, and withholding records
• A sales tax or GST nexus review showing where you have a filing obligation and whether you are registered
• Evidence of tax paid, plus any open notices, disputes, or audits
• Contractor-versus-employee classification support for anyone paid as a contractor
• Business licences, permits, and regulatory registrations
• Statutory filings with the registrar of companies

Commercial and customers

This section answers one question a buyer cares about a lot: is the revenue real, and will it still be here next year? Concentration is the flag they look for first. If one account is a third of your revenue, that customer effectively holds a veto over your valuation, and the buyer knows it. Show the concentration honestly and pair it with the contract term and renewal history. Hiding it never works; they build the same chart themselves in an afternoon.

• Revenue by customer, with customer concentration clearly flagged
• Your largest customer contracts, plus renewal and churn history
• Sales pipeline and conversion rates
• Pricing, discounting policy, and standard terms
• Marketing performance and channel economics
• The competitive positioning and market sizing you genuinely use, not a slide you made once

Contracts

Buyers read your material agreements to find obligations you forgot about and anything that shifts when the company changes hands. The one that stalls closings is the change-of-control clause. A key customer or supplier contract that needs their written consent before a sale can turn into a frantic month of phone calls right when you want momentum. Find those clauses now, so you know whose signature you will need before a buyer discovers it for you.

• Customer and supplier agreements above a sensible value threshold
• Partnership, reseller, and distribution contracts
• Leases and property agreements, including any landlord consent needed on a sale
• Change-of-control and assignment clauses that trigger on a deal, listed in one place
• Insurance policies and current coverage
• Any exclusivity, non-compete, or most-favoured-nation terms

Intellectual property

This is the folder that kills the most technology deals, so build it first. The problem is almost always the same: a founder, an early employee, or a freelancer wrote real parts of the product and never signed their work over to the company. On paper, they still own it. A buyer cannot acquire code the seller does not clearly own, so the close freezes while lawyers chase old contractors for signatures, and those contractors suddenly have leverage. Get an IP assignment on file from everyone who ever touched the product, including you.

• IP assignment agreements from every founder, employee, and contractor who built the product, signed and dated
• Trademark, patent, and design registrations and applications
• Domain names and brand assets
• Licences for the third-party and open-source software you depend on, with their terms
• Any disputes, infringement claims, or unresolved ownership questions

Technology

For a product company, this folder tells the buyer whether the technology is a real asset or a liability held together with duct tape. They are looking for concentration risk of a different kind: one engineer who is the only person who understands the system, a stack leaning on an unsupported dependency, or a security posture that would not survive a customer audit. Disclose the technical debt you know about. A weakness you name yourself reads as candour; the same weakness found by their engineer reads as a cover-up.

• Product and system architecture overview
• Technology stack and third-party dependencies
• Data security, privacy, and backup practices
• Uptime, incident history, and a disaster recovery plan
• Product roadmap and how you ship
• The technical debt you would rather disclose than have discovered

People, HR, and ESOP

Buyers are backing the team as much as the product, so they check who runs the company and whether those people are locked in. Equity is where this folder gets sloppy. Verbal option promises, grants that were never formally issued, and vesting schedules that do not match the cap table all raise the same worry: who really owns this company? Reconcile every ESOP grant to the cap table and the board minutes before anyone asks.

• Employment agreements for founders and key staff, with notice periods and non-compete terms
• Organisation chart and current headcount
• The ESOP pool, grant letters, vesting schedules, and exercise history, reconciled to the cap table
• Contractor and consultant agreements
• Payroll and benefits summary
• Any employment disputes and any key-person dependencies

ESG and other

Later-stage and institutional buyers increasingly ask for a short set of environmental, social, and governance items. You do not need a glossy report. You need to show the basics exist and that nothing ugly is sitting off to the side of the other folders.

• Data protection policy and evidence of privacy compliance
• Code of conduct and anti-bribery policy
• Health, safety, and environmental practices where they apply to you
• Diversity or governance policies your investors expect
• Pending litigation, regulatory matters, or contingent liabilities not captured above

How to organise the data room and dodge the mistakes that cost founders

Build one numbered top-level folder per category above, so they open in a logical order, and name every file clearly with a date. Then stage access. Keep a first tier that anyone with genuine interest can see: the deck, high-level financials, and the cap table. Hold a second tier behind an NDA or a term sheet for the sensitive material, such as customer contracts, employee files, tax detail, and unpublished IP. Most data room tools watermark and log every view, so you can see who is reading what.

Three mistakes cost founders more than all the rest, and every one is avoidable. Stale numbers that do not match your latest management accounts make a buyer doubt everything else in the room. An unreconciled cap table, where the math disagrees with your financing documents or a SAFE was never properly converted on the books, raises ownership questions in the days before a wire. And a missing IP assignment from an early contractor can freeze a close for weeks while you track down a signature. Fix all three before anyone asks. If you want a second set of eyes to pressure-test the room the way a buyer will, structured due diligence support finds the gaps while you still have time to close them quietly.

A complete data room does more than answer questions. It tells a buyer the company is run with discipline. That impression is worth real money, because it protects your valuation and moves the deal to close faster.

Want a second set of eyes to pressure-test your data room the way a buyer will, before a buyer actually does? KayOne builds and stress-tests the checklist with you. See our due diligence services, or see if we’re a fit.