Due diligence

Due diligence is the process by which an investor verifies claims made during fundraising and uncovers risks before committing to invest. It typically begins after a term sheet is signed and continues through the exclusivity window, culminating in a due diligence report that informs whether the deal proceeds, reprices, or falls apart.

Due diligence in Indian startup deals is usually conducted across four streams. Legal DD covers corporate structure, cap table, IP ownership, regulatory licences, litigation, and material contracts. Financial DD examines historical accounts, revenue recognition, burn rate, and tax compliance. Technical DD (for product companies) assesses code quality, architecture, and scalability. Commercial DD validates market size assumptions, customer concentration, and competitive dynamics.

Common deal-killers discovered in Indian startup DD include unclear IP assignment from founders to the company, undisclosed regulatory violations (especially in fintech, healthcare, and edtech), cap table errors from informal early-stage equity grants, unpaid statutory dues (PF, ESI, GST), and incomplete FEMA filings for prior foreign investment.

Founders can accelerate DD and build investor confidence by maintaining a clean data room from day one — a structured folder with incorporation documents, all shareholder agreements, IP assignments, audited financials, key contracts, regulatory licences, and employment agreements. A prepared data room often shortens the DD process by 2–4 weeks and signals operational maturity.