Due Diligence Preparation Checklist

Purpose

This recipe produces a complete, organized virtual data room with all documents required for investor due diligence — categorized by priority, staged for the correct funding round, and structured so investors can self-serve. Having documents ready before a term sheet can cut 1-2 weeks off the closing timeline. [src3]

Prerequisites

• Term sheet received or imminent — or preparing proactively
• Corporate formation documents — articles of incorporation, bylaws
• Financial records — from QuickBooks, Xero, or Wave
• Cap table — accurate on Carta, Pulley, or spreadsheet
• Data room — Google Drive, Papermark, or DocSend

Constraints

• Priority 1 docs ready before term sheet — saves 1-2 weeks. [src3]
• DD takes 2-6 weeks post term sheet. Budget 4 weeks minimum. [src7]
• Use secure VDR with access controls — never share via email. [src4]
• Cap table accuracy is the #1 deal-killer in diligence. [src1]
• AI startups face additional technical diligence in 2025-2026. [src2]

Tool Selection Decision

Which path?
├── Budget = $0
│   └── PATH A: Google Drive — free, basic access controls
├── Budget = $0-50/mo
│   └── PATH B: Papermark — analytics, watermarking
├── Budget = $50-100/mo
│   └── PATH C: DocSend — NDA gates, password protection
└── Budget > $100/mo
    └── PATH D: Digify/Intralinks — enterprise audit trail

Execution Flow

Step 1: Set Up Data Room Structure

Duration: 30 minutes · Tool: Data room platform

Create 8 folders: 01_Corporate, 02_Cap_Table_and_Equity, 03_Financial, 04_Legal, 05_IP_and_Technology, 06_Team_and_HR, 07_Product_and_Metrics, 08_Pitch_Materials. [src4] [src6]

Verify: All 8 folders created with consistent naming. · If failed: Use exact folder names above.

Step 2: Gather Priority 1 Documents (Must-Have)

Duration: 3-5 days · Tool: Legal counsel, accounting, cap table

Corporate: Articles of Incorporation, Good Standing cert, Bylaws. Cap Table: fully diluted cap table, all SAFEs/notes, option plan, 409A. Financial: P&L monthly, balance sheet, bank statements, projections. Legal: IP assignments, litigation disclosure, material contracts. [src1] [src3]

Verify: Every Priority 1 item present. · If failed: Three most common missing: IP assignments, 409A, accurate cap table. Start immediately.

Step 3: Gather Priority 2 Documents (Usually Required)

Duration: 3-5 days · Tool: Legal, HR, product team

Board minutes and consents, tax returns, insurance policies, key contracts (customer + vendor), employee agreements, product roadmap, metrics dashboard, customer list. [src2] [src5]

Verify: 80%+ gathered or documented as N/A. · If failed: Create "To Be Provided" placeholders with dates.

Step 4: Gather Priority 3 Documents (Sometimes Required)

Duration: Ongoing · Tool: Various

Subsidiary docs, detailed revenue breakdown, debt schedule, patent filings, open source audit, GDPR/CCPA docs, security reports, AI model governance (AI startups), architecture diagram, cohort retention, NPS data, employee handbook. [src2]

Verify: Items tracked. Existing docs in room; missing documented. · If failed: P3 gaps acceptable if documented.

Step 5: Verify Cap Table Accuracy

Duration: 1-2 hours · Tool: Carta, Pulley, or spreadsheet

Verify: authorized shares match Articles, total shares reconcile, all SAFEs/notes modeled, vesting correct, option pool matches board approval, pro forma post-money available. [src1]

Verify: Cap table totals reconcile to legal docs. · If failed: Halt and resolve with counsel before proceeding — blocking issue.

Step 6: Set Permissions and Share

Duration: 30 minutes · Tool: Data room platform

View-only access, individual email links, analytics enabled, NDA gate (if available), 30-60 day expiration, watermarks on sensitive docs. Never grant edit access or share public links. [src4]

Verify: Test access in incognito browser. · If failed: Check sharing settings per folder.

Output Schema

{
  "output_type": "due_diligence_data_room",
  "format": "virtual data room",
  "columns": [
    {"name": "category", "type": "string", "description": "Document category folder", "required": true},
    {"name": "document_name", "type": "string", "description": "File name", "required": true},
    {"name": "priority", "type": "number", "description": "1=must-have, 2=usually, 3=sometimes", "required": true},
    {"name": "status", "type": "string", "description": "ready/in-progress/not-applicable", "required": true},
    {"name": "last_updated", "type": "date", "description": "Last updated date", "required": true}
  ],
  "expected_row_count": "30-60",
  "sort_order": "priority ascending, category alphabetical",
  "deduplication_key": "document_name"
}

Quality Benchmarks

If below minimum: Fix the three deal-killers first: (1) cap table accuracy, (2) IP assignments, (3) 409A valuation.

Error Handling

Cost Breakdown

Anti-Patterns

Wrong: Scrambling to gather documents after term sheet

Post-term-sheet diligence has a clock. Every day spent searching for documents risks the deal. [src3]

Correct: Maintain a living data room updated quarterly

Start at incorporation. When a term sheet arrives, share a link rather than start a document hunt.

Wrong: Sharing documents via email attachments

Email lacks version control, access tracking, and security. Sensitive data gets forwarded. [src4]

Correct: Use a dedicated data room with access controls

Individual links, view-only, watermarking, expiration dates. Track engagement to identify interested investors.

Wrong: Cap table with percentages instead of shares

Percentage-only cap tables without modeled SAFE/note conversions are a red flag signaling lack of understanding. [src1]

Correct: Share-level accuracy with conversion scenarios

Every SAFE, note, and option modeled. Fully diluted count matches legal docs. Pro forma post-money available.

When This Matters

Use when a founder has received (or expects) a term sheet and needs to prepare for due diligence. Also useful proactively — best time to start is at incorporation. Handles document organization and preparation, not legal formation.