The following checklist is intended for use by start-ups who may be preparing to seek funding. It is pretty broad, covering the requirements of many industries, but aimed more toward those who are already established as a corporation. At the very least, use it as a reference as you prep for a seed round.

Special thanks to my colleagues at ScoutForce for sharing this info.

Enjoy.

Due Diligence Checklist - Angel / Seed Round

Section 1: Corporate Documentation

1. Articles of Incorporation
2. Corporate Bylaws
3. All non-compete, confidentiality, and employment agreements between the Company, officers, Board Members, employees, consultants, and contractors
4. Board of Directors, officers, and committees biographies
5. Registration documentation for any class of securities (Debt, equity, option, warrants, etc.) issued by the company
6. Agreements related to issue or re-purchase any class of security by the company
7. Stockholder agreements, proxies, voting trusts
8. Minute Books and Resolutions (since inception of company) for shareholders, board of directors, and any committees of the foregoing
9. List of DBA’s, Fictitious business names, and all filings and registrations of these entities

Section 2: Employee Benefits

1. List of corporate officers, key employees, independent contractors, and consultants and their respective titles, duration of service, compensation history since inception of employment and current compensation and benefits package, and contractual severance or terminal obligations
2. List of employee benefit plans: including pension, bonus, commission, profit-sharing, stock option, deferred compensation, incentive, retirement 401(k), medical, disability, long-term care, salary continuation, use of corporate assets after termination, executive benefit, management prerequisites, golden parachute / change of control payments.
3. Employee stock option plan documents, options awarded but not executed, award guidelines, pricing guidelines, compliance review to prevent backdating.

Section 3: Litigation / Legal Actions

1. List and description of any pending or threatened litigation, claims, or other disputes against the company or officers related to the companies activities
2. List of government regulatory or administrative investigation, proceeding, or inquiries against the Company or officers
3. Any pleadings, filings, and communiques related to the preceding items.
4. Legal opinions rendered to the Company in the last 3 years
5. Inquiries with respect to the Company’s rights or ownership of any intellectual property, internet domain names, or other company assets.
6. Judgements, consent decrees, injunctions, or other legal orders involving the company
7. Settlement agreements the company is party to
8. List of existing claims against the company

Section 4: Corporate Agreements and Obligations

1. Consulting, development, and work for hire agreements with or on behalf of clients, vendors, or suppliers
2. Copies of all agreements with customers, clients, distributors, vendors, suppliers, shippers, installers, etc., including end-user license agreements, beta-testing, product analysis, warranties, and guarantees
3. Website hosting, connectivity agreements
4. E-commerce and software development agreements and proof of ownership of final applications, applets, documents, and graphics
5. Trademark usage guidelines, privacy policy, terms of use and other intellectual property licensure, usage guidlines
6. Agreements with employees, independent contractors, or other third-parties relating to the development for or on behalf of the company of products, services, marketing materials, promotional events, and other intellectual property.
7. List any current acquisitions the Company is involved in and provide all pre-purchase due diligence documentation and target valuation analysis.

Section 5: Regulatory Environment

1. Documentation related to filings, registrations, reports, correspondence or other communique with lcal, state, federal, or international regulatory agencies (including, but not limited to: EPA, OSHA, FCC, SEC, IRS, PBGC, FDA, DEA, ATF, NLRB, Etc.) and any such reports, determinations, or actions by these agencies directed towards the company
2. Copies of all government licenses, permits, approvals, export licenses, and authorizations necessary to continue ongoing operations to the Company
3. Export classification matrix and other product classification analysis and any product classification rulings from the BXA.
4. Export compliance procedures or manuals, including any procedures related to encryption or restricted items.
5. Summary of transport, use, handling, location, storage, treament, and/or disposal of any hazardous substances (including predecessor actions).
6. Summary or potential environmental or haz-mat property, clean-up, remediation actions related to the company’s ongoing operations or manufacturing activities

Section 6: Intellectual Property

1. Patents awarded or owned by the company
2. Documents regarding the ownership transfer of any intellectual property created by the founders of the Company prior to the Company’s creation.
3. Patents pending that are owned by the Company
4. Attorney and Freedom to Operate opinions related to the Company’s intellectual property
5. Contact information for law group responsible for the Company’s intellectual property rights registration and maintenance
6. Enforecement history of the Company’s intellectual property
7. Current patent or other intellectual Property disputes
8. List of Logos, trademarks, brand names, trade names, slogans, copyrights, and service marks
9. List of internet domain names owned or controlled by the company
10. List of all ongoing or planned development projects involving intellectual property, software, capital expenditures, or product development and projected development costs and timeline
11. List of all third-party intellectual property licensed and material to continuing ongoing operations by the Company

Section 7: SG&A and Product and Development Expenses

1. List of Outside contractors or other third-party development and design staff
2. Detailed schedule of general and administrative expenses and payroll expense
3. Detailed schedule of current and budgeted research and development expenditures

Section 8: Financials

1. Current Financials - Cash flow, balance sheet, income statement
2. Pro-forma financials prepared by company executives
3. U.S Federal corporate income tax returns for the past 2 years; all state and local tax returns filed during last 2 years
4. Complete capitalization table, including all contingent equity, warrants, options, issued or authorized
5. Outstanding promissory notes documentation and purchase agreements
6. Documentation related to bank and non-bank financing mechanisms, off-balance sheet funding, hedging activities, and other contingent liabilities, obligations, and payments owed by or due to the company.
7. List of all states and local jurisdictions where the Company currently files tax returns, including income, property (personal, intangible), payroll, sales, and use taxes.
8. Documentation from Tax examinations/audits from the past 5 years and all tax examinations/audits scheduled or in progress. include all correspondence and other communiques.
9. Descriptions of the Company’s use and payment regarding independent consultants. Include all 1099 filings and amounts from previous fiscal year.

Section 9: Sales / Marketing / Market Research

1. Provide all current marketing presentations, sales literature, product catalogs, and other documents related to the sales process the Company employs
2. Give a detailed description of the mechanics of the company’s sales cycle. Also, provide a timeline if the sales process is relatively complex.
3. What is the anticipated inventory turn over rate?
4. List all marketing displays the company provides to vendors / distributors and the anticipated cost of production of the displays. Do the vendors/distributors purchase marketing materials from the Company or does the Company provide them as part of the Product cost.

Section 10: Sales Distribution Channel

1. Sample sales/distribution agreement
2. List of third-party product distributors, sales channels, or other mechanisms that generate income for the Company, what territories are covered, the length of the contract, previous year’s sales figures by channel or distributor.
3. Describe the Company’s financial obligations upon termination of a sales or distribution agreement
4. Describe the Company’s efforts to expand and increase distribution of products. How are new distributors selected, minimum sale requirements to maintain distributorship, economic implications of termination of distribution agreement.

Section 11: Raw Materials / Purchasing Channel

If applicable,

Section 12: Risks to the Company’s Success and Business Plan

1. Identify and discuss management’s opinion regarding key risks and obstacles in the execution of the overall business plan as well as the specific plan for the deployment of the capital sought in this raise.