When raising money from angel investors, they often require a fair amount of due diligence to ensure the startup is what the entrepreneurs say it is and that it has proper record keeping. If the startup raises money from Institutional investors, like venture capitalists, the amount of due diligence increases substantially. Here are a few commonly requested items as part of due diligence from angel investors:
- Operating agreement
- Founder legal agreements like non-compete, non-solicitation, etc.
- Cap table with any equity grants, stock sales, etc.
- Customer contracts
- Employee IP assignments
- Financial forecasts
- Financial statements
- Recent bank statements
Entrepreneurs would do well to keep their legal and financial affairs in order generally, but especially so when close to the term sheet phase of the fundraising process.
What else? What are some more thoughts on due diligence when raising money from angel investors?