What steps should you take after a successful pitch to prepare for due diligence?

Due diligence is essential for securing funding. Companies eyeing fundraising should proactively prepare by ensuring timely compliance, having all documents legally signed, and maintaining clear accounting books. Such preparedness can significantly reduce the due diligence duration, leading to quicker funding, whereas a lack of it can prolong the entire process. Also organize the data room properly before sharing with investors

Make sure you engage with the advisors of the investors before setting up the data room. Almost always, advisors have their independent/distinct diligence request lists that are segregated by subject matter and/or some other internal criteria that they utilise for their diligence process. Often a startup may, in their exuberance, fill up a data room, seemingly at random, and the advisor asks the company to rearrange all the documents in the folders in the manner that they are more comfortable with. This increases the timelines for the process and often leads to unnecessary friction. Thus, its always suggested to understand how the data room should be structured for optimising timelines.

Some great insights contributed already. I would add, stage the data room materials based on investor interest and engagement. Level 1 might include your pitch deck, competitive analysis, and financial projections. Level 2 might include customer recordings/testimonials, cohort data, user metrics, product roadmap, and cap table. Level 3 might include employee names, legal agreements, detailed customer names and customer contracts. If investors aren't engaging and pursuing you, no need to share the granular data. Best to qualify investors out early (based on stage, investment thesis, capital to deploy, cultural fit, etc.) so that you can focus on the investors that you care about and want to work with.

Make sure your financial model is clear & easy to follow: Investors will look at your model not just to see “what will revenue be in five years” but to understand how you think about unit economics, growth, cost drivers and all other critical assumptions. Hence it is critical your model demonstrates clarity of thinking, intellectual honesty, realism, and a solid grasp of all drivers of your business. Your financial model is a chance to tell the story of your business with numbers - make the most of it!

Due diligence occurs after you’ve presented to an investor and they’re interested in your proposition and seriously considering investment. Think of it this way: you wouldn’t buy a property without first carrying out a survey to check for potential issues. investors view the due diligence process in the same way, its how they gain assurance in your startup credentials.

The most important, to me, is not only to have a well-organized and well-presented data room. But to have easy access to communication with the founders. Often, during the due diligence process, I want to question P&L items, and getting replies fast shows diligence and motivation - which often serves as a sanity check too.

If a founder fails to communicate effectively, especially during the due diligence process, I am less inclined to invest in them. Some VCs say that often their best companies require the least hands-on support or communication, and this may be true in some cases. However, in my experience when companies have failed to communicate it meant something was not going well. I once worked with a company that refused to provide financial statements even though our firm had information rights. A year later, the company's valuation dropped 5X and they ended up merging with another company. Even though the company is still a going concern, we ended up writing the company down to zero because we had no visibility into what was happening.

Proper communication is the key to success here. VC's got 1000 of startup pitches to evaluate and they have very limited time to go through all including the due diligence. Assigning a SPOC helps them to get all required information quickly. This leads to fast completion of VC funding process & money in the startups account. Share all new updates with them regularly so that both parties have right expectations. Usually, it takes 1-2 months to complete al steps end to end.

The priority is to make sure your accounting is tight and can be broken down by product and service as this will among the first thing a potential buyer will be looking at to make sure the sales and margins are accurate. Without good accounting controls, one should hold off until this is done in order to proceed to due diligence.

Communication is the key to due diligence. A single point-of-contact will help expedite the communication bottlenecks in the DD process. Also, it should be someone who is not a founder because the DD process can be time-consuming with questions coming in from DD firms. Actively closing them will make the deal close faster. If the founder is stuck on due diligence, other productive areas in the fund-raising like pitching to other investors will be jeopardized.

Review the claims made in your pitch deck regarding market size, growth rates, customer demand, costs, etc. Make sure you have solid evidence to back these up like market research reports, customer surveys, focus group testing. Strengthen any weak spots. Review potential red flags. Examine your books for any issues around revenue recognition, unusual payments, conflicts of interest. Address these proactively. Update financial models. Make sure all projections tie back to assumptions and have details to support them. Provide monthly/quarterly forecasts not just annual. Model best and worst case scenarios.

Validating the claims is an important step. Founder's can make this step easy for the VCs by sharing following DATA - - sources of data used in pitch deck like market size, competitor analysis, key metrics etc - assumptions used in financial projections - proof of contracts with suppliers or customers Without reasoning and proof, numbers used in metrics, projections, market size etc have NO meaning.

Internet is full of data charts and claims but it’s on you to cross check with valid resource before using it further. From our personal prospective , online gaming market size , maket size of particular and then RMG users are particular game was all different , if not looked closer, you may end up fool yore self. And if you have used wrong data in deck , it will back fire

If possible, besides TAM and SAM size, use bottom-up approach to estimate SOM, since no matter how cool your product/solution is, eventually you will only be able to address only as many customers as your customer acquisition budget allows you to address, based on a valid CAC calculation.

About a year ago, I invested in a pre-seed company who had nothing more to show other than an idea, a pitch deck and a mock up of a website. As the company began to develop the actual product and talk to customers, they slowly started to look like a real company. They still have a long way to go to validate the product, which for me that means they need to successfully onboard several customers and demonstrate that their platform works and generates revenue. There's not an industry standard for the number of customers that need to try your product before it's "validated." However, I can confidently say that it's more than two or three.

Good Team is BIGGEST advantage in an early stage startup and it must be conveyed well to the VCs by answering following questions - - why this team is best suited to solve their target problem - how is the trust, coordination & execution capabilities within the team - how team members worked together nicely in the past - what unique insights/ experiences team possess to solve this problem - how much customer obsessed and first principle thinker team is This will be really helpful to VCs while analysing the startup.

Investors love big ideas, but a team that can implement on its ideas is generally recognized as a more important factor in making a successful investment. Having a few key members of the team available to speak with potential investors can help them understand the strength of leadership, the ability of the team to work well together, and whether the founder(s) have found people smarter than themselves in critical roles where they need support. Bottom line, a strong team will help you close your financing round.

I recently had a conversation with a founder CEO who had to make the difficult decision to part ways with his founding CTO. The split was amicable as both agreed that the company needed someone in the role with more experience. As I was listening to the founder describe this situation, I was impressed with the poise and measure he showed in making such a tough decision so early in the life of a young company. He's the type of leader that I'm impressed me. He's demonstrating through his actions that he and his team are willing to make the necessary sacrifices they need to make to succeed. What VC wouldn't want that? For me, your ability to lead is a reflection of your team and culture at your organization.

Think of your team as Avengers. Every superhero has unique abilities, but they all know the mission. Alignment is key- make sure everyone knows their role in the grand narrative you're trying to convey. Early stage investors invest in you & your team. Your product, business & value proposition model are likely to change, and your investors must know that you have the right team to navigate the ups & downs of this journey.

As noted above, fully vetting your team, its formal hierarchy and controls, and their rights, stakes, roles and responsibilities as to the business, are all items that should not just be showcased or shown off but also highlighted in technical and legal terms. Failing to formalize a control structure or roles easily leads to investor uncertainty. When pitching for my own investment fund with two partners we presented to a group of about 30 investors. Not one slide into the presentation the group leader stopped us cold and said, "Your deck does not tell me where the buck stops. Who do I call when things get difficult?" Showing off the team is necessary. Pinpointing who is responsible for key roles is truly essential to survive underwriting.

If you waited until the term sheet stage to hire a solid startup lawyer, then I think that's a knock against you. So much goes into getting things right prior to the term sheet and experienced startup lawyers should be able to do it very cost-effectively. Relying on the 80/20 rule, you want your house is good order going into a financing round and having a lawyer that understands your history is only a benefit during the term sheet stage.

Review all terms with your legal counsel to understand the implications. Key areas to scrutinize include valuation, equity percentage, liquidation preferences, board seats, voting rights, and protective provisions. Assess which terms are open for negotiation and which are standard or non-negotiable. Negotiate firmly but fairly. Avoid overly diluting your equity or limiting future options unless necessary. Clarify ambiguous language. Define metrics and milestones precisely. Model different term scenarios to evaluate impact on future fundraising, exit potential, and control.

Often, startups defer hiring a lawyer till after the term sheet is signed (sometimes, not even then!). This has sometimes (in my experience) led to challenges negotiating the transaction documents as seemingly innocuous terms in the term sheet may have very serious ramifications that the startup either chooses to ignore or does not have the ability to discern on its own. Understandably, the exuberance of receiving a term sheet after possibly months of scouting and pitching leads to some level of relief and terms of a term sheet are accepted without much deliberation. Nevertheless, to avoid such situations (that may ultimately lead to delays in receiving the funds), involve your advisors right from the term sheet stage.

1) Do your research. Before you start negotiating, it is important to do your research and understand the market terms for startups in your industry and stage of development. This will help you to negotiate a fair deal. 2) Be prepared to walk away. If you are uncomfortable with the term sheet terms, be prepared to walk away from the deal. There are other VCs out there, and you should not feel pressured to accept a deal that is not in the best interests of your startup. 3) Get everything in writing. Once you have reached an agreement with the VC, be sure to get everything in writing. The term sheet should be a comprehensive document that outlines all of the terms and conditions of the investment

Your best negotiating tool for better terms is to have more than one interested investor so, as long as circumstances permit, don’t stop looking for others on receipt of the first offer.

Balance between your business operation and the investors relationship plays a vital role in the growth journey of your company. It can be easily be balanced out if you are 2 co founders and one of you take responsibility of investor relations as this full time job and other one focus on Business and growth.

Stay laser focused on executing business plans and driving growth. Don't let the process become a distraction. Look for quick wins to bolster metrics. Onboard new customers, release product enhancements, etc. Leverage experience running businesses amid uncertainty to instill confidence in resilience. Keep top tier investors warm in case of any issues. Maintain regular check-ins. Continue soliciting support and feedback from trusted mentors and advisors. Be transparent with team and explain process so they stay motivated and focused. Celebrate milestones to keep morale and energy high even during extended diligence. Proactively manage existing investors and shareholders to ensure continued alignment.

Address any weaknesses or red flags in your company upfront - lack of traction, high burn rate, churn etc. Have a plan to mitigate concerns. Review your pitch deck and thoroughly validate any claims, projections, metrics and assumptions. Back up statements with evidence and be ready to explain your methodology. Update pitch deck and presentations with latest traction, KPIs, financials. Quantify progress since last meeting. Stress test your financial model. Vet your assumptions on pricing, costs, churn, growth rates etc. Do sensitivity analysis to determine viability under different scenarios.

Proactively seek out critique, and remain open to all of it. It's one thing to pay an analyst to test your financial model and challenge your assumptions, and another entirely to have a VC or their team find that your model, or your marketing plan, or any other pivotal piece of your business is unrealistic. Every ounce of doubt cast by mistakes reduces the likelihood you get a term sheet you can accept.

Prepare your data room or VDR (Virtual Data Room), where you can organize essential materials for investor analysis. You can use ready-made VDR tools or set up a shared folder in the cloud. Remember the following: - prepare an appropriate structure of information - it should be logical - name folders and files in a way that allows you to verify what is inside - include relevant information - update content - your VDR should be up to date - navigate - in one file, you can describe the content; adding links will allow viewers to explore its content easily Your VDR can contain: - executive summary - financial model - key metrics - product development roadmap - team & roles - cap table - relevant contacts - Other information: IP, technology

Add risk mitigation strategy to the conversation. As It may sound counter intuitive, but you want to dive deep into your business model, operations, and market assumptions and identify potential vulnerabilities. This is your chance to preemptively discover and address issues before they're pointed out to you. By doing this, you're not just risk-proofing, you're demonstrating mature leadership and foresight.

Ask questions!!! Your VC isn't just a piggy bank; think of them as co-pilots on your startup journey. A few pointed questions can go a long way. Why? Uncover VC Synergies: You get a sense of what your VC specializes in. Talent acquisition? They might have exclusive partnerships or access to invite-only B2B circles. Vibe Check: The answers might reveal a mismatch in vision or style. Hey, not all partnerships are made in heaven! Unlock Hidden Resources: You’d be surprised what treasures lie behind their 'connections' tab—sometimes it's much more than just capital. Proactivity Pays: Lastly, you’re showing your VC that you’re not just along for the ride—you’re in the driver’s seat, but wise enough to consult the map they bring.