If you’re reading this, you’re probably mid-round, mid-anxiety, and mid-“oh god, is our cap table clean enough for another human to see?”

Take a breath. Due diligence feels like someone x-raying your life’s work, but underneath the chaos, it’s actually very structured. Investors and buyers almost everywhere follow similar patterns: they’re verifying what you’ve told them, hunting for risk, and checking if you’re the kind of team they can trust.

This guide is written from your side of the table — practical, 2025-relevant, and ruthlessly focused on what actually matters.

1. What Due Diligence Is Really Testing (And Why It Feels So Intense)

For fundraising or M&A, due diligence is a deep audit of your company’s legal, financial, operational, and technical reality before someone wires serious money.

Whether it’s Seed, Series A, or an acquisition, they’re basically asking three questions:

Is this company what it says it is?
Where are the risks or landmines? (legal, financial, technical, regulatory)
Is this team organized, honest, and in control?

Depth changes by stage — Seed can be “light but real,” while Series A+ and M&A get much more exhaustive, often using formal checklists and structured data rooms.

The goal isn't perfection. It's no nasty surprises and a clear, coherent story. Peony provides AI-native data rooms with instant Q&A and question analytics to streamline the diligence process.

2. Step 1 – Clean the Foundation: Company, Cap Table, Legal, IP

If there’s one place to start, it’s here. Messy corporate hygiene kills deals faster than imperfect metrics.

Core documents investors expect:

Incorporation docs, bylaws, shareholder agreements, amendments
Board consents and minutes (especially for key decisions)
Clean cap table: equity, options, SAFEs/notes, secondaries, major investors
Founder agreements: vesting, cliffs, IP assignment
Contractor/employee agreements with clear IP assignment
Trademarks, patents (filed or granted), domain ownership

Red flags to fix early:

Former co-founder or contractor who still technically owns core IP
Unrecorded verbal equity promises or advisor deals
SAFEs/notes with strange side-letters or conflicting terms

If this section is tight, everything else is easier. If it's not, this is where you call your lawyer, not later.

3. Step 2 – Make Your Numbers Bulletproof: Financials & Core Metrics

Investors don’t need McKinsey decks. They need consistent, reconciled numbers and a founder who clearly understands them.

Minimum financial package:

Historical:
- Monthly P&L (at least 12–24 months if possible)
- Basic balance sheet and cash flow statements
Forward-looking:
- 12–24 month projections with explicit assumptions
- Runway calculation based on current burn

Key metrics they’ll zoom in on:

MRR / ARR and growth rate
Gross margin
Churn (logo + revenue) and expansion
CAC, payback period, contribution margin (even rough)
Revenue concentration (top 5 customers as % of revenue)

If the numbers are imperfect (they always are), don't hide it. Label estimates clearly, explain your method once, and stick to it.

4. Step 3 – Show the Engine: Product, Tech, Security & Data (Including AI)

Technical and security diligence in 2025 is much more serious than a decade ago, especially for SaaS and AI startups.

What to have ready:

One clear system architecture diagram (current state, not fantasy)
Description of stack, hosting, environments (prod/stage/dev)
How you ship: CI/CD, testing approach, release cadence
Uptime/incident history, SLAs for enterprise customers

Security & data posture:

Access control and permissions model
Secrets management (no API keys in Notion screenshots)
Onboarding/offboarding process for employees and contractors
Where user data lives, who can access it, and how it’s backed up
Data processing agreements (DPAs), privacy policy, terms of use
GDPR/CCPA stance if you touch EU or California users

If you’re an AI company (or using AI heavily):

Investors now expect clarity on:

What models you use (open-source, proprietary, third-party APIs)
Where training/finetuning data comes from and licensing status
How you manage bias, hallucinations, and safety risks
How customer data flows through your AI features (and what’s logged)

You don't need a 50-page security report, but you do need to show you've thought about this like an adult, not a hackathon. Secure document sharing platforms provide identity-bound access and watermarking for secure technical documentation sharing.

5. Step 4 – Prove It’s a Real Business: Customers, Revenue & GTM

This part answers: “Is there real demand, and can this team sell?”

Customer & revenue pack:

Customer list with tiers (enterprise / mid-market / SMB)
Top 10–20 customers with ARR, start date, expansion/churn notes
Contracts: MSAs, order forms, renewals, any weird custom deals
Pipeline snapshot with probability and expected close dates
Churn summary: who left, why, what changed afterwards

You don’t need to hide discounts or ugly early deals; just explain the story: “These three legacy customers are heavily discounted; everything since 2024 is on the new pricing grid.”

Logos, testimonials, and simple cohort charts help investors see momentum without a 60-slide sales deck.

6. Step 5 – Build a Data Room: Structure, Access & Process

In 2025, the “data room” is not optional — it is the diligence process.

A good data room is:

Clearly structured
Easy to navigate in under two minutes
Secure, with sensible permissions and audit logs

Suggested folder structure:

01 – Corporate & Cap Table
02 – Financials & Metrics
03 – Legal, Contracts & IP
04 – Product, Tech & Security
05 – People & HR
06 – Customers & GTM
07 – Board, Strategy & Misc

Inside each, keep filenames short and clear: 2024-12_Monthly-PnL.xlsx is better than FINAL-FINAL-v7-USE-THIS.xlsx.

Use NDAs, watermarks, view-only permissions, and activity logs so you can share confidently while knowing who saw what. Peony provides AI-native data rooms with identity-bound access, password protection, dynamic watermarking, and complete analytics for professional due diligence.

7. Step 6 – Run the Diligence Process Without Burning Out

You’re not just uploading documents; you’re managing a stressful, multi-week project while still running a company.

Simple way to run it:

Before term sheet:
- Get the foundation right (Sections 2–4).
- Create data room skeleton and upload evergreen docs.
After term sheet:
- Work from the investor’s checklist in order.
- Assign owners internally: finance, legal, tech, people.
- Keep a running Q&A doc so answers stay consistent.

Communication rules that save your sanity:

It’s okay to say: “We don’t track that yet; here’s the closest proxy.”
It’s okay to push back: “Pulling that would be a significant distraction — here’s why. Would X suffice?”
It’s vital to flag issues early rather than hoping they won’t be noticed.

And emotionally: you're not being judged as a human; you're being evaluated as a steward of a complex system. No one has everything perfect. The fact you're reading an article like this already puts you ahead of a huge number of founders.

If you work through these six steps, you won’t eliminate all stress — but you’ll replace panic with a plan. And that’s usually the difference between a chaotic, deal-threatening diligence process and one where investors come away thinking:

“This team is organized, transparent, and serious. We can work with them.”

You deserve to be seen that way. Use Peony for secure due diligence data rooms with AI-native Q&A, question analytics, and secure sharing to accelerate the process.

Frequently Asked Questions

What is startup due diligence?

Startup due diligence is a deep audit of your company's legal, financial, operational, and technical reality before investors wire money. Peony provides AI-native data rooms with instant Q&A, question analytics, identity-bound access, and watermarking to streamline the process.

How do you prepare for startup due diligence?

Clean your corporate foundation (cap table, legal, IP), make your numbers bulletproof, show your product/tech/security posture, prove real business traction, and build a structured data room. Peony helps: upload all documents to a secure data room with AI-native Q&A so investors self-serve 80–90% of questions.

What's the best data room for startup due diligence?

Peony is best: upload your corporate docs, financials, contracts, and materials to a secure AI-native data room with instant Q&A, question analytics, identity-bound access, password protection, and watermarking for faster due diligence.

Can you see what questions investors ask during due diligence?

Most traditional data rooms only show page views. Peony provides complete question analytics: see what investors ask most, which topics cause confusion, and areas that stall deals for proactive follow-ups.

How do you share materials securely during due diligence?

Peony is best: upload all diligence materials to a secure Peony room with identity-bound access, password protection, watermarking, and tracking, then share one protected link instead of email attachments or Google Drive links.

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