What VCs Actually Check in Due Diligence (And How to Be Ready)

Due diligence is what happens after a partner is interested but before they issue a term sheet. It's the firm's way of pressure-testing whether the story you've told holds up under scrutiny. Most founders dramatically underestimate it — both the depth and the speed.

This article walks through what investors actually check, and how to be ready.

The four buckets of diligence

Diligence breaks roughly into four categories. Most firms do all of them; the depth varies by stage and cheque size.

1. Commercial diligence. The market, the customers, the unit economics. Is the business as good as you say?

2. Technical diligence. The product, the engineering, the architecture. Can the team deliver?

3. Team and reference diligence. Who you are, what people who've worked with you say about you, and how the team functions.

4. Legal and financial diligence. Cap table, IP, contracts, financials. Is the company structurally sound?

We'll walk through each.

Commercial diligence

What investors are trying to test: that your traction is real, repeatable, and not a one-quarter fluke.

Documents and information they'll ask for:

• Customer list. With ARR per customer, contract length, start date, churn status.
• Cohort retention. Monthly cohorts retained over time. The shape matters more than the level.
• Pipeline. Deals in flight, by stage, with forecasted close dates and ARR.
• CAC and payback. What it costs to acquire a customer and how long until you make that back.
• Revenue concentration. Top 5 customers as % of total ARR. Investors get nervous about anything north of 30%.
• Logos and use cases. Who's using you and for what.

References they'll call:

• 3–5 of your customers, randomly chosen (often at least one of your largest, one of your earliest).
• 1–2 churned customers if any.
• Possibly 1–2 prospects who didn't buy.

The customer reference call is one of the most powerful diligence tools investors have. They are not just confirming that the customer exists. They are listening for: how the customer talks about the product, whether they describe it as critical or nice-to-have, what they'd switch to if you disappeared, how the founder showed up during the sales process.

Your job is not to control these calls (you can't). Your job is to have built customer relationships strong enough that the calls go well naturally. We have a piece on this: investor reference calls.

Technical diligence

The depth depends on the technical complexity of the company. For a deep-tech or AI company, expect serious technical scrutiny; for a thin-app SaaS, expect a lighter touch.

What they typically want:

• Architecture overview. A diagram and a 30-minute walkthrough with the technical co-founder.
• Code repo access. Some firms ask for read-only access to the production repo; some don't.
• Infrastructure and reliability. Uptime, on-call, security posture.
• Roadmap and engineering velocity. What you've shipped in the last six months, what you'll ship in the next six.
• AI / model architecture (if relevant). Which models, why, how you handle costs, what's your moat.

Some firms hire external technical diligence — a senior engineer or fractional CTO who reviews the codebase. The output is a memo to the partnership.

Be ready: have a clean architecture diagram in your data room. Be honest about technical debt. Founders who pretend the code is pristine while a senior engineer spends two hours in the repo lose credibility instantly.

Team and reference diligence

For most rounds — especially early-stage — this is where deals are won or lost.

Investors will:

• Call founders' previous managers, peers, and reports. They will ask: was this person high-output? Did they make others around them better? How did they handle pressure? Would you hire them again?
• Call previous co-founders or business partners. They will ask: how was the working relationship? How did you split work? Why did you part ways?
• Look at how the founders interact in meetings. Co-founder dynamics show up in micro-tells. A team where one founder talks over the other in IC is remembered.

Be ready: think hard about who your strongest references are. Pick people who have worked closely with you, can speak to specific stories, and will be enthusiastic. Warn them in advance, briefly, about what's coming. Five strong references beat fifteen lukewarm ones.

We unpack this further in picking the right references for diligence.

Legal and financial diligence

This is the most procedural, but it's where deals slip when documents are messy.

What they'll want:

• Cap table. Up to date, in a format that exports cleanly. Carta or similar is fine; spreadsheets are fine if accurate.
• All option grants. With dates and vesting schedules.
• Articles of incorporation, bylaws, board minutes.
• Founder employment / IP assignment agreements. Each founder has signed an IP assignment? Yes? Prove it.
• All material contracts. Customer agreements above a threshold, vendor agreements, partner agreements.
• Financial statements. P&L, balance sheet, cash flow. For early-stage companies, often just QuickBooks or Pilot exports.
• Revenue recognition policy. How you recognise revenue. Especially relevant if you have multi-year contracts.
• Outstanding debts and obligations.

Common red flags that delay closes:

• Missing or incomplete IP assignments. This kills deals. If a former contractor wrote any material code without a signed assignment, you have a problem.
• Cap tables that don't reconcile (option grants not in the cap table; SAFEs unaccounted for).
• Ambiguous founder vesting from earlier rounds.
• Customer contracts with unusual termination or IP clauses.
• Personal guarantees on company debt.

Fix all of these before you start a fundraise. Diligence is the wrong moment to discover that your contractor from 2024 still owns a chunk of your codebase.

What surprises founders

A few things repeatedly catch first-time founders off guard.

The pace is brutal. Most rounds compress diligence into two to four weeks. You'll be asked for documents you didn't know you needed. Have a data room ready before you open the round, not after.

They will talk to your team. Investors often want a conversation with someone other than the founders — usually a senior engineer or the head of sales. Pre-brief that person. Investors notice if your team can articulate the strategy as well as you can.

They will check things you forgot. Old SAFEs from a friends-and-family round. A side LLC you opened. A trademark someone else filed. Investors will find these. Your only move is to surface them before they do.

They will ask the questions you hoped to avoid. Why your last hire left. Why your churn was elevated in Q2. Why you and your co-founder briefly stopped speaking last spring. Have answers — and prefer truth.

We catalogue the worst of these in the diligence questions that catch founders.

How to be ready

The simplest way to ensure diligence goes smoothly:

1. Build the data room before you raise. It takes a weekend; doing it under deadline takes a week of stress.
2. Reconcile your cap table with your lawyer. Make sure every SAFE, every option grant, every founder share is accurate.
3. Get IP assignments signed for every contractor and every employee. No exceptions. Today, not next week.
4. Pick and brief your references. Tell them what's coming and what you'd love them to highlight.
5. Document the awkward stuff. Why a co-founder left. Why a customer churned. Why a hire didn't work out. Have an honest, short narrative for each, ideally in a memo you keep handy.

Diligence is uncomfortable, but it's a sign of progress: it means an investor likes you enough to spend their time on it. The founders who win at this stage aren't the ones with no skeletons. They're the ones who take their skeletons out of the closet themselves, with the explanation already written.