Diligence is where raises stall, and it is almost never because an investor found something shocking. It is because the company took three weeks to produce a document it should have had on a shelf.
Every week spent assembling paperwork is a week the investor spends wondering what else is missing. The mood of a deal changes in that gap, and it rarely changes back.
These are the seven things to have ready before anyone asks.
1. Filed accounts, and management accounts since
The last set of statutory accounts, plus management accounts up to the most recent month end.
The gap between the two is where questions live. If the filed accounts are eighteen months old and the management accounts start six months ago, expect to be asked what happened in between.
2. The cap table and the loan note register
One document each, current, reconciled, in a spreadsheet rather than someone’s memory.
For the cap table: every shareholder, class, number of shares, and any options or warrants outstanding.
For the register: every note, holder, amount, date, rate, maturity, security and conversion terms. Loan notes accumulate quietly over two or three years, issued by people who have since left. If this cannot be produced cleanly, it becomes the subject of the deal.
3. The security documents
Every charge, debenture and guarantee, with the corresponding entries on the public register.
Reconcile them yourself first. Charges that were repaid but never released still sit on the record and still get found — and an unreleased charge that you cannot explain is worth more damage than one you can.
4. Material contracts
The contracts behind the revenue. Customer agreements above a threshold, supplier agreements you depend on, leases, licences, and anything with a change-of-control clause in it.
That last category matters more than founders expect. A key contract that terminates on a change of control can materially change what an investor is buying.
5. Employment and people
Contracts for the founders and senior team, the option scheme rules and grants, and confirmation that IP created by employees and contractors actually belongs to the company.
Contractor IP is the classic gap. A freelancer built part of the product, there was no written assignment, and the company does not own what it thinks it owns. It is fixable, and far cheaper to fix before diligence than during.
6. IP and regulatory
Registered trade marks and patents, domains, and any licences the business requires to operate.
Also the honest position on what you do not hold — including, if you are not regulated, a plain statement of that rather than language that implies otherwise.
7. The public record on the directors
Companies House filings, prior directorships, any disqualifications or insolvencies.
This gets checked in the first ten minutes, before anyone reads your memorandum. Anything there should be disclosed by you, in your own words, in the pack. Disclosed reads as candour; discovered reads as concealment, and the difference is the whole deal.
Assemble it before you start
Put the seven in a single, indexed folder before outreach begins.
Two things follow. Diligence takes a fortnight rather than two months. And an investor who asks for something and receives it the same day forms a view about how the business is run — which is, in the end, most of what they are trying to work out.
Related reading
- Investor-ready documentation: what they read before they read you
- What goes in an information memorandum
- What investors look for in a loan note
Mark Johnson is a Director of BDM Wealth Management, which introduces capital raising opportunities across bonds, loan notes, IPOs and SEIS/EIS. To discuss a raise, get in touch.
BDM Wealth Management is an introduction business and is not regulated. This article is general information, not financial, tax or legal advice, and does not constitute an offer or invitation to invest. Capital is at risk and you may get back less than you invest. For high-net-worth and sophisticated investors only. Take independent professional advice before making any investment decision.