Due Diligence

• A simple declarative statement outlining the pain or problem in the market and the company’s solution that addresses the need
• The company’s unique advantage
• A brief history of the company 
• An outline of the company’s financial needs
• What are the issues that keep the management team awake at night?

People

• Organizational chart
• Complete resume of each member of the management team that concentrates on accomplishments rather than just titles
• Significant gaps in the senior management team
• Bios of the advisory board with responsibilities in Company outlined. Note: most start-ups don’t have formal board of directors, but there are exceptions
• Professional advisors – lawyers, accountants, bankers, etc.
• References: current and prior customers of the management team, former employers, suppliers, former business partners, bank references
• Reps, warrants, and disclosures (legal issues (pending law suits or threats of same), conflict of interest, etc. -- anything that might hinder or impair the functioning of the company, management, or employees
• Compensation for all officers, key personnel, and founders, including options which include an overview of the vesting periods
• Employment contracts, partnership agreements, non-competes and assignments such as founders assigning rights to the company.

Market

•  Market Opportunity - size of the mega market, addressable market niche, and expected market penetration within the next three-to-five years
• Competition
• Market geography and industry trends
• Barriers to entry
• Market maturity and where the product fits into the business maturity cycle
• Potential acquirers (particularly among the 800-pound gorillas)
• Activity within the vertical market – with industry multiples

Product

• Product description – in detail, focusing on what it does, not how it does it
• Stage of development – Alpha, Beta, etc.
• Pricing structure and unit sales forecast per year
• Unique features. What is the product advantage over the competition?

Sales and Marketing

• The sales and marketing strategy in some detail.
• The sales pipeline-- direct and channel sales model and distribution plans
• Price and price history
• Product description
• Brand positioning
• Sales force required
• Target market
• Promotion plans – hard launch, marketing, media relations, product literature, etc.

Ownership

• Chain of title – legal documents that prove ownership
• Copies of all patents and status of filings, especially patents pending
• Trademarks and copyrights
• Clearance to operate – releases from prior agreements, past employee contract, non-competes, etc.
• Regulatory issues identified
• Licensing agreements for and their financial impact
• Status of filings, including ensuring payments are current
• Copies of material contracts (including license agreements, if any)
• Employment agreements

Competition

• Details on the major competitors – especially the 800-pound gorillas
• Advantages of the competitions -- their product branding and position in the market (what market share do they own)
• Competition’s strengths and weakness and how Company can counter the former and take advantage of the latter
• How are the major competitors growing – organically, through consolidation, through aggressive marketing?
• Plan and strategies to deal with direct, indirect, and alternative competitors, including how Company will deal with the status quo in encouraging customers to buy its products rather than maintaining traditional solutions
• Assessment of how competitors will react to the entry of Company
• List of major customers who are buying from the competition and the major reasons they are purchasing the products

Financials

• Historical financials - Five-year financial pro formas (in detail). These financials must include cash flow projections to the next round of financing, breakeven timing, and profitability forecast
• Balance sheet and P&L
• Historical financials
• Current fiscal year versus plan
• Debts outstanding
• Monies raised to date – 3Fs, founders, management, employees, directors, advisors, grants, loans, etc.
• Proposed use of proceeds
• Current and projected burn rate
• Staffing requirements – compensation and options
• Pre-money valuation.

Other Legal

• Any claims, threatened or pending claims or litigation
• Notification of lawsuits