Due diligence checklist: investment (start-up)
Legal due diligence checklist for an investment in a start-up company.
Why use a due diligence checklist?
As a starting point for its legal due diligence, an investor (or its advisers) will send a due diligence checklist to the company, comprising a series of questions and requests for information. The company should respond to the specific questions and provide copies of relevant documents.
Depending on the answers and documents provided, the investor may have follow-up questions.
The investor is likely to require warranties in the investment documents regarding the accuracy and completeness of the answers and information provided during the due diligence process. Care should be given in answering the requests, due to potential claims for breach of warranty and misrepresentation.
The answers and materials provided should also form the basis of the specific disclosures to be made by the company or other warrantors in the disclosure letter which will accompany the investment documents.
About this due diligence checklist
This checklist is for an investment in a start-up company which has either not yet commenced trading or which has only been trading for a limited period. On this basis, the company should have a limited amount of available information to provide. As a start-up company, the priority areas for an investor are likely to be:
- share capital: the number of issued shares and any shares which might have been promised or allocated as share options
- funding: how the company has been funded to date, for example whether there any loans from the founders or family members which should be treated as their equity contribution
- founder service contracts: do the founder(s) have service contracts with the company which tie them to the business for a period of time, together with applicable post-termination restrictive covenants and protections for intellectual property developed by the founder(s) during the course of their employment
- intellectual property: if important to the business, to ensure that intellectual property which may have been created outside the company (for example by a founder or a third party consultant) has been assigned to and is owned by the company
- business plan and projections: to understand how the business plan, forecasts and projections have been compiled
- checklist in table form for completion by the company
- subject headings covering the key areas of interest to a potential investor in a start-up business
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Alternative Due diligence checklist
For a form of due diligence checklist for the investment in an established business, see Due diligence checklist: investment.
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