Most start-ups raising series A funding come across a huge administrative question: How to get ready for due diligence? The trick is not to prepare for due diligence but to be prepared for it. In this article we discuss 6 simple ways to be prepared for A-round due diligence.
Start today and get a better valuation
It is easier to keep things in order than to put things in order. Thus, unless you are already doing so, start to run your admin in a way that everything is documented:
Use written agreements (e.g. employments, suppliers, customers etc). Standardizing as much as possible makes this a less burdensome task.
Keep board minutes. If you wish to run an agile board with ongoing coaching, it will make sense to hold decision meetings in each quarter to make and record the actual decisions.
Be 100% digital
As a start-up in a digital age your admin should be digital as well:
Use cloud-based contract management system (preferably with a build-in dataroom) to store and organize all your legal documents.
Ensure that your accountant uses a software that enables third-party access for due diligence.
If you are professional, you have credible KPIs
Define great KPIs that can be used in all situations:
Budgeting and forecasting.
If possible, monitor the KPIs through an online dashboard for which an access can be given for the due diligence team.
Keep it simple, stupid! The more complex issues you have, the more complex the due diligence (and your business) will become.
Use start-up savvy accountant
In accounting cheapest is not the best option. Using an accountant with start-up experience helps you maintain adequate compliance. Consider electing an auditor one year before to the A-round. Accept only 100% digital accounting firms.
Use experts when things get complex
So you missed rule #4? When you enter into more complex dealings (e.g. setting up a foreign subsidiary, issuing options etc.) it is time to start using qualified lawyers and tax advisors. As with accountant, prefer the ones with relevant start-up experience.
This article is based on "How to be prepared for Due Diligence?" paper by Ali Omar and myself. The paper alongside a due diligence checklist can be obtained here.