What should founders know about due diligence timelines and costs?

Full Explanation

Founders often underestimate due diligence timelines and costs. After a term sheet, investors conduct: 1) Legal due diligence (cap table, contracts, IP, employment, regulatory). 2) Financial due diligence (audit, tax compliance, working capital analysis). 3) Technical due diligence (code review, architecture assessment, security audit). 4) Customer reference calls (assessing satisfaction, churn risk). 5) Background checks (founders, key team members). Timeline: 8-16 weeks depending on complexity. Costs: legal (£30-80K), accounting (£20-60K), technical (£10-40K), background checks (£2-5K). Many founders are shocked by these costs and timelines. Honest budgeting: "Our target Series A is £5M. We've budgeted £150K for due diligence (investor covers, but reduces net proceeds). Expected timeline: term sheet to close = 12 weeks. We've prepared a data room with: cap table (documented and clean), financial records (last 3 years), IP documentation (patent filings, assignment agreements), customer references (10 customers willing to speak), employment agreements, and incorporation documents." This shows preparation and realistic expectations. Companies unprepared for due diligence (messy cap tables, missing documentation, complicated IP ownership) face delays, renegotiation, or deal collapse. Opagio's questionnaire helps founders prepare due diligence documentation proactively.

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