AI advisor. Alikhan
Due diligence, the investor's thorough check of a company, is the stage between agreeing on the terms and transferring the money.
Level: for beginners
Language: Russian
Duration: 1:45
Due diligence, the investor's thorough check of a company, is the stage between agreeing on the terms and transferring the money. The investor checks whether reality matches what you said in your pitch. How does it usually work?
First, the parties agree on the main terms of the deal in a term sheet. Then the startup gathers documents in a data room, and the investor's team starts studying them. The depth of the check depends on the stage. At early stages, pre-seed and seed, it takes weeks and is limited to a basic check of legal soundness, the team and the product. At Series A, as practitioners describe it, the check becomes much more demanding: it is a full-fledged legal and financial analysis plus calls to customers, and the timeline can stretch to several weeks.
What exactly gets checked? Broadly, six areas.
First, finances. The investor reconciles the financial statements, revenue, cash flow and forecasts, and checks that the numbers are real and consistent across documents.
Second, metrics and traction: customer retention, unit economics, growth.
Third, the legal side: founding documents, contracts, share capital, litigation and compliance with industry regulations.
Fourth, intellectual property. A common finding in these checks: the founders built the product before the company was registered, and there is no agreement transferring the rights to it. This needs to be formalized in advance.
Fifth, the team: experience, roles, references.
Sixth, customers and the market: investors call your customers and check whether they confirm what you have claimed.
Y Combinator notes that if everything is prepared in advance, closing the deal can be sped up by about a week. Hence the practical takeaway: put your data room together not after it is requested but before the round starts.
Why all this matters so much is clear from the Theranos case. The company promised a revolution in blood testing, and investors put more than $700 million into it. Most of them didn't verify the technology: they were shown presentations, spreadsheets and controlled demonstrations. The manager who invested the DeVos family's money later admitted that she had not visited the labs in Walgreens pharmacies, had not talked to Walgreens representatives and had not hired independent experts. GV, by contrast, passed on the investment because too many questions remained unanswered: one of its life sciences specialists simply went to a pharmacy and took the test himself.
The takeaway for founders: a well-prepared startup gets through the check quickly, while a poorly prepared one loses trust and time. For the investor, the takeaway is the reverse: you can't rely on words alone; you need checks.
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