Essentially they will build a hypothesis around what makes your company worth investing in (e.g. great goto market, passionate customers, technology likely to be bought, ...) and will focus on double-checking what they believe needs to be true for that is actually true.
Essentially it's broken down into:
Technology due diligence (by an outside contractor)
- understand architecture
- interview CTO
- understand technology choices
Essentially the technical DD is whether your CTO knows what they he is doing and can actually deliver the roadmap.
Go-to-market DD
- call with your channel partners if you have them
Product DD
- call with a sample of your customers
- Actually try the product themselves
Team DD
- reference calls on all founders + backdoor references
- CV's of core team
Business audit
- P&L
- cashflow
- cap table
- sales activity (growth, churn, acquisition)
Due Diligence should not raise any surprises and confirm what you have pitched them. It's a very rational thing to do before you wire a few million into a company you have met only a few times.
> Due Diligence should not raise any surprises and confirm what you have pitched them.
This is key and something that I have explained multiple times over the last couple of years to people that really did not get why a surprise or two during a DD were a 'big deal'. DD is confirmatory, not discovery.
Technology due diligence (by an outside contractor)
- understand architecture
- interview CTO
- understand technology choices
Essentially the technical DD is whether your CTO knows what they he is doing and can actually deliver the roadmap.
Go-to-market DD
- call with your channel partners if you have them
Product DD
- call with a sample of your customers
- Actually try the product themselves
Team DD
- reference calls on all founders + backdoor references
- CV's of core team
Business audit
- P&L
- cashflow
- cap table
- sales activity (growth, churn, acquisition)
Due Diligence should not raise any surprises and confirm what you have pitched them. It's a very rational thing to do before you wire a few million into a company you have met only a few times.