Due Diligence Checklist | Startup Investment Due Diligence Checklist


Posted May 15, 2021 by Neail1

Due Diligence Checklist If you select your startup requires investor support, be made for an intensive due diligence process and have any expected documents ready and well organized.

 
Due Diligence Checklist If you select your startup requires investor support, be made for an intensive due diligence process and have any expected documents ready and well organized. Failure by startups to know what to expect from due diligence or poor preparation may result in potential investors being stopped.
Below is a standard two-part list of company information that most institutional investors will look for during the due diligence process. They are extensive but not exhaustive, and all apply depending on the company. The founders and the management team should consider preparing and organizing themselves with the following to make the process as smooth as possible.

part One
Basic company documents and history

Due Diligence Checklist
1. Board Resolutions and Reports – All signed decisions (including written approvals) or reports prepared for the Board of Directors or any similar administrative body of the company, as appropriate, and any of its committees, including copies of any written notices or waivers thereof.
2. Minutes of Shareholders – Minutes of all meetings and all signed decisions (including written approvals) of shareholders, members or partners of the company, as appropriate, including copies of any written notices or assignments thereof.
3. Press Releases – Over the past three years, all news or press releases issued by or in connection with the company.
4. Foreign Qualifications – A list of all local and international jurisdictions in which the company maintains an office, owns or leases property, where employees are located, and is qualified to do business as a foreign entity, or is eligible to do so as a foreign entity.
5. Board of Directors and Directors – List of current managers and employees of the company (including name, age, position and duration of service), in addition to current salaries and bonuses
6. Organizational Charts – Internal Operating Manuals and Structural Charts.
7. Affiliations – Summary of business and personal relations and an association between managers, officers, shareholders, creditors, customers, suppliers, and other subsidiaries.
8. Communication with Shareholders – All reports and any other transmissions to shareholders.

Company Law or Income Tax
Due Diligence Checklist

Securities Matters
1. Shareholders or Members – List of current shareholders or members of the company, as appropriate.
2. Books and notebooks – stock books and company books.
3. Options – Schedule of pending options, orders or any other contracts, obligations, agreements or promises, oral or written, in connection with the issuance, subscription to, purchase, sale or transfer, any securities of the company (including, where applicable, Beneficiary, issue dates, exercise price, maturity, duration, etc.).
4. Capitalization Schedule – List of authorized, issued and outstanding securities of the company (depending on the type of guarantee and the basis of its transfer, including the names of shareholders, shareholder tax identification numbers, issuance dates, consideration received, number of earned and unearned shares and maturities). Please indicate whether the securities will accelerate the merger or change in control of the company.
5. Other securities – Copies of all other convertible securities of the company.
6. Obligations – details of any additional fees, charges or claims relating to any securities of the company.
7. Certain Agreements – Voting Agreements, Ballot Boxes, Redemption Agreements, Stockholders’ Agreements, Registration Rights Agreements, Restrictive Agreements, Securities Purchase and Resale Agreements, Stock Restriction Agreements, and Other Agreements, Contracts or Obligations of which the company or any of its Leaders Or its employees or shareholders.
8. Purchase Agreements and Memorandums – Agreements for the purchase of securities from the company and any individual deposit memos or circulars.
9. Other Agreements – Contracts or other agreements relating to the securities of the company, including the Broker / Trader or Sales Agents Agreements.

Due Diligence Checklist
Insiders
1. Allowances – details of the Board and management allowances and similar arrangements.
2. Dues/amounts payable – Documents related to any dues from any manager, employee, partner, shareholder, affiliate of the business or any of its subsidiaries or any of them.
3. Other Agreements – All agreements (including warranties) with, and description of all transactions between the company and any of its current or former employees, directors, shareholders and partners of the company or any of the subsidiaries of any of the above mentioned.
4. Bankruptcy – details of any bankruptcy or insolvency of any of the shareholders or directors of the company, and the aspects of any liquidation of his company or other entity that any of the directors was a manager, administrator or shareholder.

Due Diligence Checklist
Documents related to indebtedness
1. Loans – Documents and agreements that demonstrate borrowing, whether secured or unsecured or other indebtedness (long-term or short-term), including contracts, loans or loans, bonds, letters of commitment, letters of credit, etc. Relates to any outstanding, long-term or short-term debt, including amendments to that, and any related instruments granting security interests.
2. Debt Schedule – A debt schedule that identifies all short and long-term debt and capital lease obligations with principal amounts, interest rates, outstanding balances, and maturity dates.
3. Financing arrangements – Documents and agreements are proving other material financing arrangements, instalment purchases, etc.
4. Investor Financing – All documents related to financings with investors, including any questionnaires approved by investors, if any.
5. Financing Data – A list and copies of all current financing data.
6. Liens and Liabilities – Schedule of claims and mortgages against any company assets or inventory (whether or not from the public record).
7. Documents and agreements are proving the guarantee and other bond arrangements.
8. Company Loans- List and documents all loans provided by the company, including mortgages to officers, managers and employees.
9. Correspondence with lenders – Correspondence with the lenders of the company regarding any alleged default or failure.
Due Diligence Checklist
Contracts and obligations
Copies and details (to the extent of oral and written summaries) of all material contracts and all capital commitments of the company, including without limitation:
1. Customer Contracts – All agreements with clients currently in force or under consideration and a schedule for major customers for each production line, giving annual dollar amounts sold (please note that any of them have contract requirements).
2. Distributor Agreements – All agreements with distributors or sales representatives regarding the sale of the company’s products or services.
3. Operational Contracts – All agreements with dealers, suppliers and service providers that include more than $ 25,000; all vendors (including Fares, Oem companies, dealers, selling representatives, etc.), retail distribution (including service and supporter contracts, Marketing agreements, etc.), advertising, and related agreements covering more than $ 25,000; and the schedule of major suppliers (please indicate whether they are sole-source contracts), giving the annual dollar amounts purchased.
4. Development contracts and joint venture agreements – All agreements concluded outside the normal course of business, including consultancy, development, capital commitments, technology exchange, cooperation, joint research, and joint venture agreements.
5. Subsidiaries – All contracts, arrangements, plans, and understandings in which any manager, officer, shareholder, partner, or any subsidiary of the company, or any of the foregoing, on the one hand, and the company, on the other hand, are parties, including loans and guarantees.
6. Employee Agreements – all employment contracts with management and other employees; Deferred Compensation Agreements, Contract Termination Agreements, Settlement Agreements, Advisory Agreements or any other agreements with any independent contractor or consultant (including information on whether the consultant is a former employee), similar agreements; all non-competing agreements, non-solicitation agreements, and agreements Non-Piracy, Non-Disclosure Agreements, Restrictive Covenants and Similar Agreements dealing with the company’s rights in inventions or other intellectual subjects established by all indemnification agreements with employees, former employees or consultants and similar agreements; LIBAT employees or supervisors and similar agreements; and all cases of conflict of interest or codes of ethics policies or similar materials. Due Diligence Checklist
7. Non-Competition and Confidentiality Agreements – Copies of all non-competitive agreements, non-solicitation agreements, non-piracy agreements, confidentiality agreements, non-disclosure agreements (in any case, other than those referred to in the mail (6) above) Party.
8. Operational Agreements – Copies of all operating agreements covering more than $ 25,000, including at least agreements relating to stockpile packages, storage, delivery or disposal.
9. Brokerage, Agency, Shipping Agreements – Copies of all agreements involving more than $ 25,000 requiring the company to continue or facilitate the business on behalf of another party, or, on the contrary, obligate another party to continue or facilitate business on the company’s name.
10. Service Agreements – Copies of all service agreements covering more than $ 25,000 (such as property maintenance, advertising, accommodation, transportation, restaurants, landscaping, etc.).
11. Standard forms – Standard forms for customer agreements, distributor agreements, sales representative agreements, employment agreements, licensing agreements, leases, seller agreements, agent agreements, purchase orders, and supply orders used in connection with procurement, licenses, sales, and leases.
12. Government Contracts – All government contracts, models of subcontracting forms, affirmative action plans, and supporting data.
13. WARRANTIES OR REMEDIES – All warranties and all indemnities relating to the company’s obligations and all warranties or damages by the company or any former entity, its employees, directors or partners in the obligations of any other person or entity.
14. Agreements of the Union and Labor Relations – description and copy of any bargaining agreements or other agreements relating to the Union in the company and the date on which any such agreement is open for renegotiation; description of cases of labor unrest; all pending or threatened labor strikes or other labor problems Description of any ongoing or anticipated attempts by trade unions; description of labor relations; experience in trading and bargaining history; and grievance files.
15. Consultants – list of all current consultants and independent contractors of the company (including name, age, position and duration of service), along with current compensation.
16. Miscellaneous physical contracts – All other physical contracts that are not otherwise described in the remaining period of more than one year or involving amounts exceeding $ 25,000 or equivalent rights or obligations.
Trademark Class 45
Due Diligence Checklist
Litigation and claims
1. Current litigation – summaries of all litigation and dispute resolution; Memorandum of all disputes and pending disputes and all other disputes or disputes settled or otherwise terminated, including the following information: parties, place of action, nature of proceedings, date of commencement, amount of damage or other relief required; Insurance-related.
2. Contingent Liabilities – Summary of the environment and amount of all unrecorded liabilities and contingent liabilities (including threatened claims and reasons for action), the experience of warranty, exposure to responsibility for products, environmental pollution, personnel problems, material disputes with third parties; and copies of all related correspondence.
3. Government Investigations – summaries and memoranda relating to any governmental or administrative investigations, procedures or arbitration processes, whether pending, threatened or concluded, to which the company is subject to or subject to them; and review all relevant documents relating to such investigations, proceedings and arbitration.
4. Approval Decrees – All approval decrees, judgments, judicial and administrative orders, settlements, orders, etc. that require or prohibit future activities of the company.
5. Legal Opinions – All opinions made by the lawyer considering any pending lawsuit against the company (including letters to the auditors).
6. Internal Investigations – Copies of any documents related to any internal investigation or audited by the company, including without limitation relating to any actual or alleged misconduct by the employee, consultant, sales representative, distributor or another company representative, regardless of whether This investigation or review resulted in a mistake.
7. Labor Claims – Include all charges or claims filed against the company with any administrative agency, including, without limitation, Ministry of Labor, EEOC, Occupational Safety and Health Administration, Social Security Administration, Unemployment Committee, Office of Contract Compliance Programs Federal or any of the government or local counterparts and any documents relating to these fees or claims.
Due Diligence Checklist
Concrete characteristics
1. Properties – List all properties owned, leased, leased, or used:
1. Remember whether the property is owned or leased (whether it is rented or leased) and the list of the entity or individual holding the title or lease and describes the property and its related privileges, structures, provisions for rent, use and location.
2. Copies of all works, rents, mortgages, sales contracts, surveys, sub-leases, assessments, environmental studies, with respect to leased property, and all notices of default under these rents and closing letters.
3. Dividing information and records related to zoning violations, approvals, special exceptions, and non-conforming uses.
4. All real property interests, including without limitation the rights of first refusal, etc., relating to any property listed in Figure H.1.An above.
2. Leases – a copy of all contracts, licenses and similar agreements relating to real estate, with all schedules and amendments made to them.
3. Reports and Policies – All ownership reports, valuation and property insurance documents concerning any property or assets of the company.
4. Other leases – Copies of all contracts of movable property and personal property.
5. Asset Lists – Copies of all asset lists, including a list of all assets not on the property owned or leased by the company.
Due Diligence Checklist
Intangible properties
1. Trademarks – Schedule of all foreign and domestic trademarks, service marks, logos, company names, trade names, all applications for registration (including the intention to use forms), registrations, and cancellation of the challenge of ownership or validity of marks used by the company.
2. Patents – Schedule of all foreign and domestic patents, patent applications, disclosure of inventions, re-examinations, reinstatement of cases, opposition or other actions that challenge ownership or validity concerning them.
3. Copyright – Timeline of all registered copyright rights and applications for copyright registration, unregistered material copyright rights (including the right to software and databases) and all actions challenging ownership or validity concerning them
4. Patent Relationship to Products / Services – Schedule showing the relationship of each patent right identified in the company’s goods and services (for example, any company’s products are covered by the company’s patents)
5. LICENSE AGREEMENTS – All agreements involving the transfer or right to use the intellectual property rights to which the business is a party, whether as a licensee or a sublicensor or a licensee or a licensee, including research and development of products and software (including open source code), distribution and marketing.
6.Company’s registered intellectual property policy – the company’s written policy and procedures for the selection, clearance, use and protection of trademarks; for the collection or disclosure of patents for the protection of copyrights; for the preparation and prosecution of patent applications; enforcement of patent rights and avoiding infringement of the rights of others;
7. Confidentiality Agreements – Confidentiality/non-disclosure agreements (or other agreements with non-disclosure terms) with employees and with any other persons, such as actual or potential consultants, developers, vendors or customers, with respect to proprietary information.
8. Company Ownership Information Policy – Company’s written policy and procedures to protect the confidentiality of commercial and confidential information.
9. Company Policy for Open Source Software – The Company’s written policy and procedures for the use of open-source software and its list of all open source licenses in which the open-source code is used or incorporated into the company’s software.
10. Allegations of Infringement – Copies of all notices and correspondence (including to or from the company’s lawyer) in connection with claims of infringement or misappropriation of (i) Intellectual Property Rights of the Third Party by the company; and (2) Intellectual Property Rights of the Company By third parties.
Due Diligence Checklist
part two
Finance
Financial Statements
1. Detailed monthly timetables, income and cash flow statements for the last three years and the current period since the beginning of the year. Only at the end of the year?).
2. The audited financial statements (if any) and administrative letters issued by the auditors regarding audits.
3. A copy of the latest business plan and budget covering 2012-2016.
4. Analysis of operational, general and administrative expenses (as a percentage of revenue) by large category during the last three years and the current period for the period for one year.
5 – monthly financial reports packages distributed to senior management.
6. Sales by the country for 2011
Related Party Transactions
1. Summary of sales, purchases, sales or service arrangements from or to related parties, including key terms and whether they are weapons-length (including balances of receivables between companies and accounts payable). Include a description of services provided by/to related parties.
Due Diligence Checklist
Income statement
Revenue and customer information
1.orders, sales (in both $ & units) and gross margin by main product total, customer type and by the geographic field for the past three years and period since the beginning of the current year.
2. Describe non-recurring revenues (including large one-time applications), non-producing revenues (royalties, licenses, trademarks or patent revenues), extraordinary and unusual items for the past three years.
3. Schedule showing the accumulation of fixed orders, byline of production as of the current date and as of the corresponding time of the previous year (including estimated gross margin and expected sales timing of the backlog).
4.top ten customers ranked by sales for each of the last three years and the current period since the beginning of the year.
5. List of important new customers and missing customers in the past three years.
Balance Sheet
For the last three years and the current period since the beginning of the year, please provide the supporting:
Cash
1. Bank reconciliations including bank records for the current period since the beginning of the year and the end periods of the previous three years.
2. Provide a list of any restrictions on cash.
3. Accounts receivable
4. Accounts receivable Aging analysis and trends for the past three years and the latest available month.
5. Date of provisions for doubtful accounts balance, bad debts and write-offs, sales proceeds reserves, discounts, rebates, recoveries and credit memos in the last three years and the current month available.
Inventory
1. Stock balances by location, total main products and type (raw materials, working process, finished goods).
2. Summary of write-offs and the basis used to develop obsolete and slow-moving inventory reserves, including any sales history and write-offs of obsolete/excess inventory.
Manufacturing and purchasing
1. Summary of locations and descriptions of sub-contracted manufacturing facilities.
2.list of the top 10 great suppliers by buying $ and details of supplies purchased from each.
3. A list of any production/sales made under license agreements or royalties.
Prepaid investments and other assets
1. Schedule of prepaid expenses and other long and short-term assets (including goodwill and depreciation criteria) including assessment of potential recovery.
Due Diligence Checklist
Property and equipment
1. Schedule of fixed assets including acquired date, original cost, accumulated depreciation, net book value and final estimated value.
2. A list of capital expenditures (historical, current and planned for the next three years) separated by a major category (e.g. machines, general administrative systems, buildings, etc.)
Accounts payable and accrued liabilities
1. Ageing schedule in accounts payable and significant accrued expense accounts for the last three years and the most recent month available.
2. Details of customer deposits and any deferred returns by type and customer for the last three years and the current period since the beginning of the year.
3. Escrow and sales return history (expenses and reserves) for the past three years and a description of how the warranty and sales reserves proceeds have been developed.
Emergency and litigation
1. Summary of pending threatened or alleged judicial claims and any legal entitlements including contingent liabilities, product liability claims and outstanding supplier claims.
Agreements
1. Joint venture, partnership or trust agreements to which the company is a party.
Sales and Outbound Marketing
the sales
1. Detailed regulatory views of sales resources, territories and accounts.
2.orders and sales by customers in each of the last three years.
3.orders and sales by-product in each of the last three years.
4.orders and sales by geographical area in each of the last three years.
5.orders and sales by vertical industry sector in each of the last three years.
6.orders and sales in each of the last three years by existing customers versus new customers.
7.orders and sales in each of the last three years for current products versus new products.
8.top 20 customers (by sales $) in each of the last three years, indicating sales in the year and what products and services consist of the amount of $.
9. Most current sales operations reports, including activities, forecasts and performance measures.
10. Most current sales funnel and configuration, today and a year ago by product, region and industry sector.
11. Past 12 month won / loss review by region, goods and customer.
12. The discount trend over the past three years.
13. Currently outstanding selling points.
14. Tenders currently open.
15. Top 10 prospects for the next 12 months.
16. A detailed explanation of the sales compensation plan.
Outbound Marketing and Corporate Communications
1. Outbound marketing budget and expenses for the last three years.
2. Most current marketing operations reports, including activities, expectations and performance measures.
Development
Proprietary technology
1. A detailed list of all patents, applications, trademarks and copyrights.
2.list all previous/current legal and patent infringement cases (issued and received).
3. A list of all contractors and their contractual rights in intellectual property.
4. List of issues related to the protection of geographical patents.
5. All trademarks and verification of registration along with any history of disputes/infringement proceedings.
Current and previous products
1. Provide detailed product documentation which includes feature descriptions, architecture and design, technical performance specifications and other relevant details. Where appropriate, pay special attention to the apparent ability of the product (s) or solution (s) – describe the characteristics of greater product deployment.
2.list all recent products and explain how long it was available and what features evolution and schedule was.
3.list all products that have been cancelled or discontinued (EOLed) in each of the last three years and explain the rationale for the action. Indicates whether a newer product has replaced the previous product.
4. Provide a table of strengths/weaknesses for each product of technology and competitive point of view and refer to plans and schedules to address shortcomings where appropriate.
5. A list of all third-party and open source dependencies was indicating the intellectual property right to use the case.
Product quality
1.list all products CE compliance status and other regulatory agencies which are suitable.
2. Provide the last 12 months of product defect and trouble date tickets by product, including arrival rate, closing rate, accumulated for one year, the current accumulated.
Future products and features
1. Present a roadmap for the development of existing products that also define the process against future efforts.
2. Consider the current development situation versus the planned location, identify deferred efforts and provide explanations and countermeasures.
3. Indicate whether any effort has been capitalized to develop the product, if so what is the effect of P&L output.
the organization
1. Detailed organizational opinions by resources, tasks, location, etc.
2. Detailed presentation of R&D expenditure by product, segment, etc.
HR
executive managers
1. Copies of executive employment agreements, termination agreement, change in control agreement
2. The only operational health benefits (SERP, Escherichia coli, etc.) with the list of participants
3. Disability benefits for executives only; list of participants
4. Special allowances for executives; List of participants
5 – Document plan summary of deferred compensation
6. List of participants and the amount deferred by each participant
Due Diligence Checklist
the organization
1. Organizational charts for each department and function
2. Staff manual and/or HR policies / new guidance documents
3. List of all locations and amount of employees
Manpower
1. A list of all employees including ID number, name, job title, manager, annual basic salary, annual bonus rate, job position, department, lease date, location, country, currency, union / non-union, FLSA status, date of birth, Previous year W-2 Part-time status
2. A list of all hired employees or independent contractors which include ID number, name, job title, manager, annual basic salary, percentage of an annual bonus, job position, department, date of employment, date of appointment to complete, location, country, the currency of agency.
Compensation
1. Copy of payroll structures, compensation philosophy, methodology and implementation structures.
2. Policies and practices relating to public wages or salary increases administered by the program.
3. Special retention charts; list of participants with details of payments
Stock Software
1. Summary Plan document for stock options programs including unqualified incentive stock options, restricted stock options, stock options, employee stock ownership policy (ESOP) and employee stock purchase plan (ESSP)
2. List of employees who received stock options or RSUs that include name, department, job title, strike price, stock amount, stock value, maturity date, country
3. List of participants in the ESOP program
4. Records of the Compensation Commission, the agent’s materials, regarding the plans
Catalytic compensation
1. Incentive Compensation Plans;
2. The date of compensation is three years and the expected payment of
Employee benefits
1. Local and international summary plan documents for all benefits
2. A copy of the contracts/agreement with third party officials (TPAs) local and international
3. List of participants in each benefit; the monthly contribution of employees for each benefit; the company paid part of the benefits
Retirement plans
1. The defined benefit pension plan if appropriate – active or frozen
2. Plan defined contributions – Copy of non-discrimination test results; investment options available
3. Document of the summary plan for supplementary retirement benefits
4. List of participants in the supplementary retirement benefit plan
5. Medical obligations of retirees (actuarial valuation whether active or frozen)
Termination program
1. The written plan, policy or agreement document
2. Description of termination payments over the past two years
3. 5500 models and schedules for the past three years
Migration and employment status
1.list of all ex-pats, in Pats and non-resident aliens by the country in which they work and their visa status.
2. Any actual or threatened audit or information request by the Government
Facilities
1. Ownership
2 – A copy of the leases executed in full and all amendments
3. Summary of any leases or options occurring within the next 12 months and the current status/effort towards them, such as notices issued, renewals in negotiation
4. Description and estimated cost of any ongoing or deferred capital improvements
Provide services and support
1. Detailed service and support (and processes) organizational (SSO) views by resources, regions and accounts.
2. Most current SSO processes report, including activities, forecasts and performance measures.
3. Determination of warranty coverage and period plans.
4. Provide the latest three customer satisfaction surveys or equivalent.
5. Provide a list of customers with the number of trouble tickets each had in each of the previous three years and what the current state is.
Manufacturing and transactions
the public
1. Provide standard delivery standards, lead times and returns as per product model.
2. List of facilities, addresses, leased or owned, and square footage used in manufacturing.
3. Projected changes in facilities requirements in the next 2 to 3 years.
4.list the major equipment expenses needed for production and testing operations.
5. Leased, owned, age, estimated annual downtime, etc.
6. The expected annual capital budget of 2 to 3 years and estimated annual maintenance.
Manufacturing and Supply Chain System
1. Provide details on manufacturing and financing systems (Oracle, SAP, etc.).
2. Describe the process of material planning and control (MRP, forecast purchase, JIT, investment management supplier, Kanban, etc.).
3. Provide stock details:
1. Last 12 months expiry value of inventory, by location, by product
2. Another 12 months finished stock turns metric
3. Last 12 months of inventory adjustments (cost management, loss, scrap, etc.)
4. Any stock found in the consignment or sent to others
4. Provide supply chain details:
1.top 10 suppliers, titled, annual direct materials spend with each
Quality and compliance
1.list all quality compliance certificates (ISO, TL)
2. Provide field return measurements according to the product model
3.list all goods certifications (CE, UL, FCC, etc.) and comply (NEBS, RoHS, etc.) as the product model
4. Provide details on hazardous waste disposal, emissions or environmental permits required and status
5. Provide details of safety programs such as controlling company documents, and company audits and worker compensation claims
6. Provide export codes (ECCN, Levant) and any export licenses required by product model
7.list all products that hold encryption and decryption abilities
8. List all countries shipped to by goods model

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Issued By LetsComply
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Categories Finance , Law , Loans
Tags due diligence , due diligence checklist , startup investment
Last Updated May 15, 2021