Quick Answer
Investors check four categories before closing a funding round: corporate records (cap table, ROC filings, board resolutions), intellectual property ownership, contracts and employment agreements, and any undisclosed liabilities. Most delays trace back to IP still held in a founder’s personal name or a cap table with undocumented share issuances. Fixing these before the term sheet stage keeps a round on schedule.
The gap between a term sheet and a closed funding round is due diligence. This is where deals most commonly slow down or fall apart. It’s rarely because of the company’s business fundamentals. It’s usually fixable legal and corporate housekeeping gaps discovered too late.
Here’s exactly what investors check during due diligence, organized by category, so founders can get ahead of it before the term sheet stage.
What Does Corporate Due Diligence Cover for a Startup?
Corporate due diligence confirms that the company legally owns what it claims to own, that its records match its actual structure, and that nothing was signed away without proper approval. Investors, and their legal counsel, will request these documents early.
The checklist:
- Clean cap table. Every share issuance and option grant is documented, board-approved, and reflected accurately in the register of members.
- Up-to-date ROC filings. No overdue annual returns or pending Ministry of Corporate Affairs (MCA) notices under the Companies Act, 2013.
- Board minutes and resolutions. Properly maintained, signed, and stored for every material corporate decision.
- Statutory registers. Registers of members, directors, and charges are complete and current.
- No undisclosed related-party transactions. Every transaction between the company and a founder, director, or their relatives is disclosed and properly approved.
A messy cap table is the single most common reason a diligence process stalls. If option grants were promised verbally but never formalized, or if early shares were issued without board approval, investors will flag it immediately. See our related guide on startup funding.
What Does IP Due Diligence Cover Before a Funding Round?
Investors are funding the company’s assets, not the founders personally. If the core IP, whether that’s a patent, a trademark, or the codebase itself, sits outside the company, investors are effectively funding something they don’t control.
The checklist:
- IP ownership. All patents, trademarks, copyrights, and code are formally assigned to the company, not still held in a founder’s personal name.
- IP assignment clauses. Every employee and contractor who contributed to the product has signed an IP assignment agreement.
- No unresolved IP claims. No open third-party claims and no open-source license compliance issues embedded in the core product.
- Renewals current. Registered IP renewals (patents, trademarks) are up to date, with nothing lapsed.
IP ownership gaps are among the two highest-value red flags investors look for, alongside cap table issues. A single missing assignment agreement from an early contractor can hold up a signing for weeks. For a complete breakdown of how investors value and verify IP, see our IP Valuation for Indian Startups guide.
Preparing for a funding round? Altacit Global can run a pre-investor due diligence check for you. Contact info@altacit.com.
What Contract and Employment Issues Come Up in Investor Due Diligence?
Contracts and employment agreements reveal risks that don’t show up in financial statements. Investors read these closely because a single change-of-control clause in a customer contract can materially affect the deal.
The checklist:
- Key contracts reviewed. Customer and vendor agreements checked for change-of-control or assignment clauses that could be triggered by the investment itself.
- Employment agreements in place. Every key employee has a signed agreement with proper IP assignment and confidentiality clauses.
- No pending disputes. No pending or threatened employment disputes, including with former employees or co-founders.
- ESOP pool documented. The employee stock option pool is properly documented and board-approved, with grant letters matching the cap table.
A change-of-control clause in a major customer contract is easy to miss and expensive to discover late.
Common Red Flags That Delay or Kill a Term Sheet
Some issues surface repeatedly across diligence processes. Investors, and their counsel, are trained to look for these specifically.
Red Flag | Why It Matters |
IP owned personally by a founder, not the company | Investor is funding an asset the company doesn’t legally control |
Departed co-founder with no signed exit or IP assignment agreement | Creates an ownership claim that can surface years later |
Undisclosed liabilities found mid-diligence | Damages trust and can trigger a valuation renegotiation |
Inconsistent or missing corporate filings history | Signals weak governance and raises compliance risk |
Open-source code with restrictive licensing terms | Can create legal exposure if the team didn’t track license obligations |
Any one of these can be resolved before diligence starts. Discovered mid-process, each one adds weeks to closing, and some have reopened valuation conversations entirely.
How Should a Startup Prepare Before Investors Ask?
Run an internal audit against this exact checklist before fundraising conversations begin, not after a term sheet arrives. Pull the cap table, IP assignments, and key contracts into one file and check each line against the categories above.
Assign an owner, usually the founder or general counsel, to close every gap found. Most fixes, like a missing IP assignment or an overdue ROC filing, take days to resolve when caught early. Left until a data room request lands, the same fixes can delay signing by weeks.
Get Ahead of Due Diligence Before Investors Do
Due diligence rewards preparation. The startups that close funding rounds on schedule are the ones that ran this checklist against their own records before a single data room request landed.
Altacit Global runs pre-investor due diligence audits for startups, helping identify and fix corporate, IP, and contract gaps before they slow down a funding round. Our corporate and IP teams in Chennai, Bangalore, Hyderabad, Kochi, and Coimbatore have supported companies through seed to Series B rounds. Contact us at info@altacit.com before you start fundraising conversations.
Frequently Asked Questions: Startup Due Diligence Checklist India
Q1: How long does startup due diligence typically take?
For a seed to Series A round with clean records, due diligence typically takes two to four weeks. If IP ownership gaps, cap table discrepancies, or undisclosed liabilities surface mid-process, it commonly extends to six weeks or longer.
Q2: What is the most common reason a funding round gets delayed at due diligence?
IP ownership gaps and cap table issues are the two most frequent causes. IP still held personally by a founder, or share issuances that were never properly documented and board-approved, are the specific triggers investors flag most often.
Q3: Should a startup do its own due diligence before approaching investors?
Yes. Running an internal audit against the same categories investors check, corporate records, IP ownership, and contracts, lets founders fix gaps on their own timeline instead of an investor’s. It also signals to investors that the company’s governance is in order, which can speed up the process.
