INTRO TO DUE DILIGENCE
When creating a due diligence data room for an early-stage start-up company, it's important to provide potential investors with all the information they need to make informed decisions about whether to invest. Here are some items that should be included in a due diligence data room for an early-stage start-up:
1. Business Plan: This should include a detailed description of the company's business model, target market, product or service, marketing and sales strategy, and financial projections.
2. Financial Statements: Provide financial statements for at least the last two years, including income statements, balance sheets, and cash flow statements. If the company is in its early stages, provide financial projections.
3. Intellectual Property: Provide information on all intellectual property owned by the company, including patents, trademarks, copyrights, and trade secrets. This should include any licenses, agreements, or assignments related to intellectual property.
4. Corporate Documents: Provide copies of all corporate documents, including articles of incorporation, bylaws, and shareholder agreements. This should also include any minutes from board meetings and shareholder meetings.
5. Contracts and Agreements: Provide copies of any contracts or agreements the company has entered into, including customer contracts, employment agreements, and vendor agreements.
6. Tax and Legal Documents: Provide copies of all tax returns filed by the company, as well as any correspondence with tax authorities. Also include any legal documents, such as lawsuits or regulatory filings.
7. Management and Organizational Information: Provide information on the management team, including resumes and bios. Also, provide information on the organizational structure of the company.
8. Market Research: Provide any market research the company has conducted, including market analysis, customer surveys, and competitive analysis.
9. Operational Information: Provide information on the company's operations, including manufacturing processes, supply chain management, and quality control procedures.
10. Other Relevant Information: Include any other information that may be relevant to investors, such as press releases, news articles, and customer testimonials.
Remember that the goal of a due diligence data room is to provide investors with a comprehensive understanding of the company and its potential for success. By including all relevant information in the data room, you can help investors make informed decisions about investing in your early-stage start-up.
DATA ROOM FOLDERS
The specific headings for a due diligence data room may vary depending on the nature and industry of the early-stage startup company, as well as the requirements of the potential investors or acquirers. However, here are some common folders and headings that are typically included in a due diligence data room for an early-stage startup:
1. Corporate documents:
Articles of incorporation
Bylaws
Shareholder agreements
Board and shareholder meeting minutes
Business licenses and permits
Tax returns
2. Financial information:
Historical financial statements (income statement, balance sheet, cash flow statement)
Financial projections and budgets
Accounts receivable and payable
Bank statements
Tax filings and information
Capitalization table
3. Intellectual property:
Patents, trademarks, and copyrights
License agreements
Employee and contractor agreements with IP provisions
Invention disclosure documents
4. Contracts and agreements:
Customer and vendor contracts
Lease agreements
Partnership agreements
Employment agreements and offer letters
Non-disclosure agreements
5. Human resources and operations:
Employee information (including resumes and job descriptions)
Organizational charts
Employee policies and procedures
Workplace safety protocols
Insurance policies
6. Marketing and sales:
Market research and analysis
Sales data and customer metrics
Marketing plans and materials
Competitive analysis
7. Other:
Insurance policies
Litigation documents (if applicable)
Environmental or regulatory compliance documents (if applicable)
Again, these are just some of the common folders and headings that may be included in a due diligence data room for an early-stage startup, and the specific requirements may vary depending on the industry, stage, and type of investment or acquisition. It is always best to consult with legal and financial advisors to ensure that all necessary information is included and properly organized.
Non-Disclosure Agreements
Whether or not to require potential investors to sign a non-disclosure agreement (NDA) before granting access to a due diligence data room is a decision that should be made on a case-by-case basis.
On the one hand, a startup may have valuable intellectual property or confidential information that they want to protect, so requiring an NDA could help ensure that this information is not shared with competitors or used for other purposes.
On the other hand, many investors are unlikely to sign an NDA before doing due diligence on a company. Investors may see signing an NDA as a hindrance to their investment process and prefer to work with companies that are more open and transparent about their operations. In addition, the due diligence process typically involves sharing information with multiple potential investors, so requiring an NDA from each one could become burdensome for the startup.
Ultimately, it's up to the startup to weigh the potential risks and benefits of requiring an NDA and make a decision based on their individual circumstances. They may also want to consult with a lawyer to ensure that any NDA they use is legally sound and enforceable.