Preparing for an investor due diligence request

Investor due diligence examines the company behind the investment proposal. Preparation should make the ownership, finances, assets and obligations understandable. A large document room is not enough if its contents conflict or important assumptions remain unexplained.

Reconcile ownership before answering questions

Collect the register of members, articles, share issue and transfer documents, options and relevant investment agreements. Reconcile them to a current capitalisation schedule showing the basis of the figures. The company must maintain its own register of members under the current rules. ^[2]

Explain promised or conditional rights separately from shares already issued. An informal promise of equity to an employee can be material even where it does not appear in the public share information.

Check the public history

Review Companies House status, accounts, confirmation statements, charges and filed constitutional changes. Compare the public documents with the internal records and identify discrepancies before the investor does. The register is a starting point, not a complete current financial assessment. ^[1]

Record the explanation and proposed resolution for missing or inconsistent items. Do not create backdated approvals to make the file appear complete.

Organise the commercial evidence

Include appropriate financial information, material contracts, finance arrangements, employment documents, disputes, licences and insurance. The precise scope depends on the business and proposed investment. Identify contract provisions that may require consent to an ownership change or new financing.

Check intellectual property ownership, especially work created before incorporation or by contractors. Payment for commissioned work does not automatically establish ownership of copyright, so retain the relevant assignments or licences. ^[3]

Control access and responses

• Agree the scope and confidentiality arrangements.
• Use an indexed document room with controlled permissions.
• Mark versions and dates clearly.
• Keep a question log with an owner for each answer.
• Review sensitive personal or commercial information before disclosure.
• Preserve the final information supplied and corrections made.

Distinguish preparation from transaction commitments

Providing information does not itself agree the investment terms. Warranties, disclosures, conditions and completion obligations require separate negotiation and review. Ensure that statements made in responses are accurate and consistent with the formal documents.

For example, describing all software as company-owned without checking contractor agreements can create a problem later in the process. A qualified, evidence-based answer and a properly completed assignment may resolve the issue more effectively than an unsupported assurance.

Reconcile the investment story with the evidence

Compare the pitch deck, financial model and ownership schedule with the supporting records. If the deck describes company-owned technology, identify the assignments or licences establishing that position. If the model assumes recurring revenue, distinguish signed commitments from informal customer interest. The investor should receive a consistent account rather than a persuasive summary contradicted by the document room.

List proposed changes separately from completed facts. An unsigned contractor assignment or planned share transfer can be a completion action, but should not be described as already done. Clearly identifying a remediable gap can support a more credible process than leaving the investor to discover that the supporting document is missing.

Prioritise issues that affect the deal structure

Ownership uncertainty, key contract consents, founder IP and unusual shareholder rights can influence whether investment can complete on the proposed terms. Address these early. Minor document naming problems should not consume all preparation time while a material consent remains unresolved. Use a findings list with the issue, evidence, proposed action and responsible person.

For an illustrative software company, the public share information is tidy but the principal developer was engaged without an adequate IP arrangement. The investment preparation needs a focused rights assessment and appropriate agreement, not simply a better folder structure. The question is whether the company can use and control the asset on which the investor's valuation depends.

Control access and answers during review

Use a proportionate document-room structure and restrict especially sensitive information. Keep a question log so answers remain consistent and supporting documents can be located. Identify who may make factual representations on behalf of the company. An operational employee answering an investor's question should not inadvertently make a wider transaction commitment outside their authority.

Where personal data is involved, assess what is necessary for the stage of the process and apply appropriate protections. Redaction or staged access may be suitable, depending on the information and purpose. Do not include personal verification codes in general corporate due diligence material merely because the investor requests company records.

Track actions through completion

Distinguish information supplied, issue explained, document agreed and action completed. A promise to obtain a consent is not the consent itself. Retain the final evidence and update the investor response where circumstances change. This makes the closing process easier to manage and reduces disagreement about what remained outstanding.

Use IP due diligence for a business acquisition for IP acquisition checks that also illuminate investment risks. Shareholders agreement review can help review shareholder arrangements and investment-related rights, with financial, IP and other diligence work agreed according to the actual needs.

Begin with the matters most likely to affect completion: ownership, authority, key assets, financial liabilities and required consents. That order helps direct effort to issues that can delay or change the investment.