You have met with investors, they see the potential for your business, and they have expressed their interest to back your company! Now the fun begins :)
You might get a verbal comittment, the investor telling you he/she is willing to invest in your business, but closing a deal takes time. The investor will want to run background checks on you and your partners. They will want to investigate all aspects of the business, and to make sure they fully understand what they are getting into, prior to signing a contract.
If you decide your business absolutely requires investor support, be prepared for an intensive due diligence process and have any/all documentation ready. You don’t want to be the one slowing the process down and any/all legal matters are important! This list was used recently and wanted to share it with the community. Remember that you might be asked for information that is not on this list. The more information you prepare, the better your documentation, and the easier the due diligence process is going to be.
1. COMPANY LEGAL AND REGISTRATION DOCUMENTS
A. Articles of Incorporation and all amendments made to those articles;
B. Any by laws and amendments you have made;
C. Minutes of all Board of Directors, committee and shareholder meetings;
D. List of states and jurisdictions in which you are qualified to do business and in which the Company has offices or assets;
E. Material information or documents furnished to shareholders and to directors during the last two years;
F. Summary of governmental agency inquiries during the past three years;
G. Copies of all permit and licenses necessary to conduct the company’s business.
2. STOCK AND SECURITIES DOCUMENTS
A. All applications and permits for issuance/transfer of securities;
B. Sample copy of stock certificates, warrants and options;
C. Stockholder information, indicating number of shares held, dates of issuance, and consideration paid;
D. All stock options, stock purchase plans and other employee benefit plans / forms of agreements;
E. List of any outstanding stock options and warrants;
F. Any voting trust agreements, buy/sell agreements, stockholder agreements, warrant agreements and/or proxies
G. Any registration rights or pre-emptive rights agreements and convertible debt instruments;
H. Powers of attorney on any matter;
I. Other contracts, arrangements, or public or private documents or commitments relating to company stock;
J. Debt arrangements, guarantees or indemnification between officers, directors or the shareholders.
3. EMPLOYEES INFORMATION AND RELATED PARTIES
A. A management organization chart and biographical information;
B. Summary of any labor disputes;
C. Correspondence, memoranda or notes concerning pending or threatened labor stoppage;
D. All employment and consulting agreements, loan agreements and documents relating to other transactions;
E. Schedule of all compensation paid to officers, directors and key employees for past 2 years;
F. Summary of employee benefits and copies of any pension, profit sharing, deferred compensation, etc;
G. Summary of management incentive or bonus plans as well as other non-cash forms of compensation;
H. Confidentiality agreements with employees.
4. ACCOUNTING AND FINANCIAL INFORMATION AND TAXATION
A. Audited financial statements since inception (un audited if audited financials are not available);
B. Quarterly income statements for the last two years and the current year (to date);
C. Letters of counsel to the Company delivered to auditors for the last three fiscal years;
D. Aging schedules for accounts receivable for the last two years;
E. Any notice of assessment, revenue agents reports, etc. from federal or state authorities;
F. Income tax returns for the last three years;
G. Evidence of Company being current on sales tax, unemployment, social security, and other taxes.
5. MATERIAL AGREEMENTS
A. List of banks or other lenders with whom Company has a financial relationship;
B. Credit agreements, debt instruments, security agreements, mortgages, financial or performance guaranties;
C. Indemnifications, liens, equipment leases or other agreements evidencing outstanding loans;
D. All material correspondence with lenders during the last three years, including all compliance.
A. Copies of any pleadings or correspondence for pending or prior lawsuits involving the Company or the Founders;
B. Summary of disputes with suppliers, competitors, or customers;
C. Correspondence with auditor or accountant regarding threatened or pending litigation, assessment or claims;
D. Decrees, orders or judgments of courts or governmental agencies;
E. Settlement documentation.
7. PROPERTIES AND INSURANCE
A. List of material and corporate property owned by the Company;
B. Documents pertaining to proprietary technology developed/owned by the Company, including any copyright, trademark or patent filings including evidence to all the web domains owned by the Company;
C. Schedule or copies of all material insurance policies of the Company covering property, liabilities and operations.
This list was a contribution made by one of our VC4Africa members. Please continue to share resources with the community. We invite you to share your own thoughts, ideas and learnings with the community.