A First-Pass Due Diligence Checklist for Early-Stage Investors
A practical checklist covering team, product, finances, ownership, and legal basics to review before investing in an early-stage company.
Due diligence at the earliest stages looks different from the exhaustive reviews that happen in later rounds. There is rarely much data, and the goal is to catch avoidable problems and understand what you are actually buying. Here is a first-pass checklist I use to organise my thinking.
The team
- Do the founders have relevant experience or a clear reason they understand this problem?
- Are roles and equity split clearly agreed, and is everyone committed full time?
- Can you speak with people who have worked with them before?
The product and customers
- Is there a working product or prototype, and have real users or customers tried it?
- What do repeat usage and retention look like, beyond sign-ups?
- Who are the competitors, including the option of customers doing nothing?
The numbers
- How much cash does the company have, and how many months does it last at the current spending rate?
- What does it cost to win a customer, and what does a customer pay over time?
- What milestones will this round of funding reach, and will they be enough to raise again?
Ownership and the cap table
- Who owns what today, including any SAFEs, notes, and the reserved option pool?
- How would this investment convert, and what would your ownership be after the next round?
- Are there unusual rights or restrictions that already exist?
Legal basics
- Is the company properly formed, and does it actually own what it claims to?
- Have all founders and contractors signed agreements assigning their work to the company?
- Are there any disputes, claims, or regulatory issues?
Risks in writing
Finally, write down the three most likely ways the investment could fail and how you would know early. If you cannot name them, you probably do not yet understand the business well enough to invest.