A guide to verifying the legitimacy of a startup and the accuracy of its founder's claims through due diligence
Last updated: July 6th, 2023
You conduct due diligence to verify a startup is legitimate and the founder’s claims genuine.
The goal is to de-risk the acquisition to ensure you earn a return on investment. Rather than wait for problems to arise, you identify them now, while you can do something about them.
That said, treating due diligence like an inquisition is unlikely to win you favor with the seller. Be open, communicate, and accept that the process will take time.
If you lack the skills or experience to conduct due diligence on a specific aspect of the seller’s business, ask a professional to help you.
1. Send questions
Create a list of questions to ask the founder and what evidence they should provide to support their answers. Be as specific as you can to speed up the process.
Ensure the seller answers and provides evidence for every question before finishing this stage of your acquisition.
For example, you might need to see:
- Financial statements and tax info.
- Asset, customer, and vendor lists.
- Legal documents and contracts.
The founder’s answers should satisfy you beyond reasonable doubt. If anything is unclear, ask them to expand upon their answers or provide additional evidence.
- Check that the seller has answered every question.
- Ensure adequate evidence is provided for their answers.
- If required, review answers with legal counsel.
Once due diligence completes, you can now confidently sign an asset purchase agreement (APA) that finalizes the assets, terms, and closing conditions of the acquisition.
The easiest way to draft, sign, and send an APA is with our APA builder. In just a few minutes, you can create an APA that reflects the price and terms of your deal, including conditional payments and other post-closing conditions. Sign as an individual or company to ensure the correct legal information is included in your APA.
You can also upload an APA you drafted outside of the platform to send to the seller.
Since the APA is a legally-binding document, please consult with your attorney if you have any questions on the wording or its implications.
- Draft your APA with our APA builder.
- Add any optional closing conditions.
- Review the APA with legal counsel.
Due diligence with Acquire.com founder, Andrew Gazdecki
- Can You Do Technical Due Diligence Without Being a Coder?
- How to Do Technical Due Diligence on a SaaS Startup
- 8 Red Flags When Doing Due Diligence on a SaaS Startup
A process where a buyer inspects a potential investment. Often includes a detailed review of accounting history and practices, operating practices, customer and supplier references, management references, and market reviews.
Asset purchase agreement (APA)
An APA is a legal agreement between you and the seller that describes the terms, conditions, and assets of an acquisition. Once you and the seller sign the APA, the acquisition is legally binding on both of you, and then you'll move to escrow to close the transaction.
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