Due diligence checklist: What investors really check – and how to prepare

What is due diligence and why is it critical for you?

Due diligence is the structured review process that investors go through before investing. It's not optional - it's the foundation of any professional investment.

For you as a founder, due diligence is both a blessing and a curse: it delays the closing, but without a clean DD, no serious investor will invest. The best strategy is to prepare early.

Why investors do due diligence

• Vertrauensschutz:Ensure that the facts presented are true
• Hidden Liabilities:Uncover hidden debts, lawsuits, obligations
• Team-Risiken:Recognize problems in the founding story
• Technisches Risiko:Verification of IP, tech stack, security
• Markt-Validierung:Confirmation that the market is real

The five dimensions of due diligence

Professional DD is divided into five areas:

Dimension 1: Financial Due Diligence

Investors want to see:

• 3 Jahre historische Finanzen:P&L, Balance Sheet, Cash Flow
• Detaillierte Kostenaufschlüsselung:Fixed vs variable, burn rate
• Unit Economics:CAC (Customer Acquisition Cost), LTV (Lifetime Value), Payback Period
• Cash Runway:How long will the money last? (e.g. "14 months with this round")
• Revenue-Analysen:MRR/ARR, churn rate, growth rate per month/quarter
• Prognosen:12-24 months forward, with sensitivity analyses

Best Practice: Have a financial dashboard already at home that updates all of these metrics daily. Then the numbers are always at hand and cause less overhead during DD.

Dimension 2: Legal Due Diligence

Legal DD is like a dental checkup – unpleasant but necessary. Check investors:

Red Flags in Legal DD:

• Unklare Gründer-Vereinbarung (wer hat welche Anteile?)
• IP belongs to the founder, not the GmbH
• Open debts from private loans
• Warnings or ongoing processes
• Data protection violations in the past

Dimension 3: Commercial Due Diligence

Investors check whether their business figures match market reality:

• Customer References:Investors talk to 3-5 of your biggest customers
• Marktgröße-Validierung:Is the TAM real?
• Konkurrenzanalyse:Who are real competitors? How do you differentiate yourself?
• Sales Pipeline:What deals are in the works? With what probability?
• Customer Acquisition:Is your marketing really working? Or were they lucky hits?

Preparation: Prepare short, honest profiles of your top 5 customers. Investors will call them - if the calls are disappointing, the round is over.

Dimension 4: Technical Due Diligence

Tech DD is carried out by external experts. You check:

• Architektur:Is the tech structure scalable?
• Security:Are there critical gaps?
• Code Quality:Is the code maintainable or a spaghetti monster?
• IP:Genuinely innovative or simply a WordPress plugin?
• Tech Debt:How much “cleaning up” is necessary?

Best practice for CTOs: Document your architecture, write a “State of Tech” document that honestly presents strengths and liabilities.

Dimension 5: HR due diligence

The people check. Investors want to see:

• Team Stability:Turnover rate? Why did people leave?
• Vesting Schedules:Are all founders properly invested?
• Compensation:Are salaries in line with the market?
• Culture:Glassdoor reviews? Employee satisfaction?
• Background Checks:Founder Integrity

The practical DD checklist (Ready-to-Use)

Here is a complete checklist that you should prepare now:

Financial documents

• ☐ Bank Statements (12 months)
• ☐ P&L Statements (3 years)
• ☐ Balance Sheet & Cash Flow (3 years)
• ☐ Tax returns (3 years)
• ☐ Annual financial statements at the commercial register
• ☐ Unit Economics Analysis (CAC, LTV, Payback)
• ☐ 24-month financial forecast (documented with assumptions)
• ☐ Detailed cost analysis (what is each euro spent on?)

Legal documents

• ☐ Certificate of incorporation & minutes of incorporation
• ☐ Current statutes/shareholders’ agreement
• ☐ Cap table (who owns how much?)
• ☐ Founder Agreement
• ☐ Employee Stock Options Plan (ESOP)
• ☐ All previous investor contracts (for all rounds)
• ☐ IP assignments (who owns the technology?)
• ☐ Commercial register extracts
• ☐ Credit line agreements (if any)

Business documents

• ☐ Customer contracts (anonymized, top 10)
• ☐ Supplier contracts (important partners)
• ☐ Partnership agreements
• ☐ NDA contracts
• ☐ Customer References (Names & Contact Info)
• ☐ Market research / customer research data
• ☐ Competitor analysis (who is really competing?)
• ☐ Sales pipeline (for next 6 months)

Technical documents

• ☐ Tech Architecture Overview (1-2 pages)
• ☐ Security assessment (or external audit)
• ☐ Code Repository Access (for external DD team)
• ☐ Infrastructure overview (cloud costs, scaling)
• ☐ IP & Patent Overview
• ☐ Open source licenses (compliance check)
• ☐ User Data & Privacy Policy
• ☐ Disaster Recovery & Business Continuity Plan

HR & team documents

• ☐ Orgchart (current structure)
• ☐ Employee contracts (template for new ones)
• ☐ Founder Vesting Schedules
• ☐ Employee Handbook / Culture document
• ☐ Benefits & Compensation overview
• ☐ Glassdoor & external reviews (check for yourself)

Timeline and red flags

Typical DD timeline

Red flags you should know

These points become visible through DD and can kill deals:

• Unklare Cap Table:When no one knows exactly who owns what
• Große Abweichung Zahlen vs. Reality:Customers say something different than your reports
• < strong>High Employee Turnover: When top talent leaves for inexplicable reasons
• Tech Schulden:If the CTO had led to thoughts of escape
• Juristische Probleme:Outstanding lawsuits, warnings
• Gründer-Konflikte:Unclear roles or hidden rivalries
• Customer Dependency:When a customer accounts for 50% of sales

Management presentations and reference checks

During the DD, investors will hold several management presentations. These are critical:

Preparation for management presentations

• Story Konsistenz:All founders need to tell the same story
• Tiefe-Knowledge:Investors will dig deep into the business. You should know details.
• Ehrlichkeit über Probleme:If there are challenges, be proactive about them
• Szenarien durchspielen:“What if a top customer disappears?” – You should have answers

Customer Reference Calls

This is basically the “background check” of the business. Investors will speak to 3-5 of your customers. These questions are asked:

• How long have you been working with [Startup]?
• Will I make more sales from this product? (Attention: Investors check ROI claims)
• How important is this product for your business? (Replaceable jewelry feature vs. critical infrastructure)
• How is the support & collaboration?
• Would you recommend this? Would you continue if prices increased by 50%?

Pro tip: Brief your customers before reference calls. Not to lie, but to help them quickly find the essence.

The data room organization

The Data Room is the headquarters for all DD documents. Organize it like this:

Folder structure

Data Room
├── 1. Corporate Documents
├── 2. Financial Information
├── 3. Legal & Contracts
├── 4. Technology & IP
├── 5. Team & HR
├── 6. Commercial & Customers
├── 7. Investor Documents
└── 8. Regulatory & Compliance

Tools: DealRoom, Citrix ShareFile, SecureSafe, or OneDrive with access management.

After DD: Integration into the company

DD doesn't have to be stressful if you already have the right systems running. Best practice:

• Finanz-Dashboard:Real-time (QuickBooks, Xero, Kantox)
• Cap Table Tracker:Automated (Carta, Mercury, cap-table.com)
• Customer CRM:With contact & reference information (Salesforce, HubSpot)
• Tech Dokumentation:Maintained in the wiki (Confluence, Notion)
• Legal Vertrag-Management:Centralized (DealRoom, Ironclad)

If these systems are already running, DD isn't a massive overhead for you - it's simply an export of your existing infrastructure.