Diligence readiness for startups: Fix the small things before they become big problems
Startups don’t usually fail diligence because the product is weak or the market isn’t big enough. Deals fall apart over things that seem minor — until they aren't. Sloppy financials, vague IP management, or a broken cap table can turn into material risks under investor scrutiny.
These issues don't just create confusion — they raise questions about the company’s overall maturity and leadership. At Startup Partners, we’ve seen firsthand how the small things compound, and how easily preventable problems can derail a deal.
Here are six common diligence challenges that founders should tackle before they raise, sell, or partner.
📊 Diligence-ready financials
Diligence begins and ends with numbers. But many startups have inconsistent bookkeeping, partial records, or statements that don’t tie out. Month-end closes may be delayed or missing entirely. When investors encounter this, it forces them to question whether the financial story is real — or just hopeful. Worse, if historic data can’t be reconstructed, the deal may stall while third parties are brought in to validate the numbers. Diligence-ready doesn’t have to mean audit-ready, but it does mean keeping up with GAAP to a standard that investors can rely on.
🧾 Clean, reconciled cap table
Cap tables should be precise. But we frequently see multiple versions, unvested shares misclassified, or SAFEs that aren’t properly modeled. These issues slow down diligence and create uncertainty about ownership. If investors can’t rely on your cap table, they start questioning everything else — including your ability to manage future dilution and investor rights. Ensure cap table management is assigned to a known person and equity issuances are part of a known process.
🧠 Documented governance and board decisions
Startups often operate informally — and that’s fine in the early days. But when it’s time to raise serious capital or enter a transaction, the absence of governance becomes a problem. Missing board minutes, undocumented decisions, or unrecorded approvals raise questions about who’s really in charge and whether the company can be trusted to manage investor money responsibly.
🧬 Verified intangibles ownership IP assignments
For most startups, the company’s value is tied directly to its intellectual property. But in many cases, founders forget to secure formal IP assignments from early employees, contractors, or advisors. These gaps might seem harmless — until a buyer or investor realizes that critical code, trademarks, or designs aren't clearly owned by the business. At best, it's a fire drill. At worst, it’s a deal-breaker. Accountants can manage items on the balance sheet (patents, trademarks, etc) but can’t track the other intangibles (NPS, brand recognition, contractual rights). All of these are valuable to a startup and can help defend their valuation.
💰 Inconsistent revenue recognition
Revenue can be complex — especially for subscription, milestone-based, or usage-driven models. But if you can’t clearly explain how and when revenue is recognized, it becomes a point of contention. Inconsistent methods, lack of documentation, or overstatements (even unintentional ones) can lead to investor skepticism, prolonged diligence, and forced valuation adjustments. Consistency in contract terms and establishment of common processes can help stay on top of ASC 606.
📈 Scalable systems that manage how your business grows
Startups often scale faster than their systems. That’s not a flaw — it’s part of the journey. But when key metrics, unit economics, or performance indicators are buried in spreadsheets or missing entirely, buyers and investors can’t assess the scalability of the business. If they can’t see how the machine works, they won’t pay to fuel it. Scalable doesn’t have to mean multi-million dollar ledgers, but it does mean having access to the information needed when it’s needed.
Get diligence-ready, and stay ready
Startup Partners helps founders avoid these pitfalls. Our diligence readiness services bring clarity to financials, structure to governance, and confidence to your cap table, IP, and operations. Whether you’re preparing for a raise, an acquisition, or a strategic transaction, we help ensure your business is ready for scrutiny — and ready to close.
