Due Diligence for an Angel Investment

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?

2 thoughts on “Due Diligence for an Angel Investment

  1. Some additional thoughts on the topic of Due Diligence … is that all existing and potential future stakeholders (incl., investors, aquirers) will be best served by maintaining an ongoing understanding of what I call Revenue Due Diligence.

    1. WHY would someone pay?
    2. WHO is willing to pay?
    3. WHO is able to pay?
    4. WHEN are they most likely to pay?
    5. HOW will they know about you?
    6. WHY choose you now?
    7. WHY keep choosing you?
    8. WHY pay for more from you?
    9. WHY tell others about you?
    10. WHY stop choosing you?

    Consider the above The 10 Steps to Scalable Recurring Revenue.

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