Preparing For Due Diligence: An Early Stage Founder’s Guide

When you’re raising a pre-seed or early-stage round, getting to the due diligence stage is an exciting yet daunting milestone. Unlike later-stage companies, where investors are combing through years of financials and complex growth data, early-stage due diligence focuses on potential—your team, the problem you’re solving, early signs of market traction, and the strength of your vision.

At OpenseedVC, we often remind founders that early-stage due diligence is very different from the more intensive process that comes later. At this stage, investors know you don’t have fully mature financials or extensive customer data. Instead, they’re evaluating whether you’ve laid a strong foundation and if you’re positioned to execute on your vision.

Let’s break down what early-stage investors look for in due diligence and how you can best prepare for it. Here’s your checklist to get organized and approach this process with confidence.

At the earliest stages, the team carries a lot of the weight.

#1 Team: Investors Bet on People

In early-stage investing, the team often matters more than anything else. This is because while the product may evolve rapidly, the founding team is pretty much considered fixed.

Investors are betting on your right as a team to solve the problem, have some edge in your ability to quickly execute in the right direction,and adapt as challenges arise.

Team Bios: Provide detailed bios of the founding team, highlighting relevant experience, domain expertise, and complementary skill sets. Investors want to know why you’re the right team to solve this problem. Show quickly that you deeply understand the problem, have the skills to build a solution, and can attract high quality talent to help you build out the vision.

Person vs Team; Most investors think of the completeness of a team as they invest. In the event you have competency gaps in your team, be upfront about it and explain your plans to fill. Investors understand that early-stage teams are small, but they want to know you’re aware of where you need to add talent and you can onboard them quickly.

Advisors and Support: If you have experienced advisors or mentors supporting your venture, highlight them. Especially if these advisors are industry experts or have a high growth technology background, they can add even more credibility to your team

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Tip: Investors start the diligence process on the team before even the first call. Research into founder reputation via mutual networks is not uncommon, and many scour online footprint across social media to get an essence of who a founder truly is.

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#2 Financials:  It’s Not About Perfection, It’s About Understanding

Early-stage investors are pretty divided on this one. Some prefer that you have a detailed model showing a five year view. They believe that this shows some depth into the potential finances of the business.

Others don’t care - they believe at the early stage financial models are pretty much fiction. Whichever it is, know which investor you’re dealing with and align as needed. Show some;

• Basic Financial Projections: Though you may not have detailed financials, you should provide projections based on your expected growth, such as revenue estimates, future fundraising needs, and key milestones you’ll achieve with the new capital.
• Early Revenue Metrics (if applicable): If you have any revenue, no matter how small, share it. Show early signs of monetization or pre-orders, even if they are limited. Focus on how you’re testing your business model.

Tip: For early-stage investors, it's less about precise numbers and more about understanding your financial discipline and how you plan to use the funding to hit key milestones.

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#3 CapTable: Simplicity is Key

At the pre-seed stage, investors will want to ensure that your cap table is clean and simple. Your cap table shows a list of investors and their % ownership in your company. They’ll want to see that there’s plenty of room for future fundraising rounds and that you haven’t diluted your equity too much early on.

1. Cap Table Overview: Provide a straightforward cap table that includes all stakeholders, founders, early employees, and any convertible notes or SAFEs that could convert into equity. Avoid overcomplicating your cap table early on by bringing in too many small investors. Tools like Carta can help you maintain a clear and up-to-date cap table. Check out our article on tech tools for first time fundraising.‍
2. Founders’ Equity: Investors want to see that founders are properly incentivized with significant equity stakes. Be ready to explain any early dilution or share allocation. Avoid “dead equity” - random advisors or non-founders who own significant stake, >10%. Also, avoid diluting more than 20% in any round - at the later stage, growth investors are known to pass just because founders don’t have sufficient ownership to align incentives.

Tip: Captable issues are usually very strong red flags. Even if an investor truly wants to invest, issues with the entity or cap table dynamics may make them unable to.

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#4 Legal Documents: Establishing a Strong Foundation

Early-stage investors aren’t expecting a complex legal setup, but they will want to know that your company is properly structured and that your intellectual property (IP) is secure. At this stage, focus on covering the basics:

• Articles of Incorporation: Ensure your company is legally incorporated, with clean documentation that shows its structure.
• IP Ownership: If your product or service involves intellectual property, make sure your IP is properly assigned to the company. This includes any agreements with co-founders, employees, or contractors that ensure the company owns the IP.
• Investment Agreements: Using a well known template like the YC SAFE, Seed FAST, or a standard ASA or Convertible Loan Note helps. Equity investments require more comprehensive documentation that may trigger detailed legal review. Whichever it is,  Include your draft agreement in your data room so investors are aware of what instrument you will be using.
• Founder KYC: Some investors are required to carry out KYC on their founders, typical documents are government issued ID and proof of address
• Co-Founder Agreements: Investors want to ensure that all founders have legal agreements in place, outlining equity splits and decision-making authority. These agreements help mitigate future conflicts that could derail the company.

Tip: Most investors want to know that founders' shares are vesting and aren’t all issued on day one. This aligns incentives and gives investors comfort that founders are incentivised to build the startup for a long time. The most popular vesting arrangement is a four to five year vesting schedule with a one year cliff.

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#5 Traction: Early Signals Matter

At the pre-seed stage, the greatest risk is that you’re building something people don’t want or need. The second is that although they may want or need it, you can’t build a scalable business around it. At the early stages, prove that you’re building something people want and that there is appetite to (one day) pay for it.

• Pilot Customers: If you have any customers or users, provide details on how they’re engaging with your product or service. This could include early sales, (paid) pilot projects, or even letters of intent from potential customers.
• Testimonials: Share testimonials or feedback from early users, beta testers, or strategic partners that demonstrate there’s demand for your solution.
• Sales Pipeline/Go-To-Market Document: Some founders show an actual sales pipeline, waitlists, to show potential customers and stages. In addition, they may put together a detailed go-to-market document that outlines their strategy to crack the market wide open
• Market Research and Customer Feedback: Many investors at this stage speak to your potential customers to ask them directly how they may interact with a solution like yours. This could make or break their perception of a market opportunity, and some founders pre-empt this by gathering sufficient ICP (Ideal customer profile) testimonials, and feedback showing (not telling) that the product solves a massive problem, that they will use, and potentially pay for a solution like yours.  

Tip: Early-stage investors aren’t looking for perfection here—they want to see potential. But they need lots of potential with early signs of validation. Be transparent about what you’ve learned from your early experiments and how you’re refining your product or go-to-market strategy. Ask yourself what unique insight have you uncovered?

Early-Stage vs. Late-Stage Due Diligence: What's Different?

Angel stage and pre-seed due diligence is about potential and avoiding any major red flags. Investors know you don’t have years of revenue data, profitability, or a large customer base. They’re betting on your vision, your team, and the early signs that you’re on the right track. The focus is on clean legal and financial structures, proof of concept, and early market validation.

By contrast, late-stage due diligence is based on performance and involves a deep dive into metrics, financials, and scalability. Investors want to see sustained revenue growth, detailed projections, and mature operations. Legal and compliance checks become more complex, and market competition and risks are scrutinized more heavily.

At the pre-seed stage, it’s more about you and your idea, and early signs of market pull and belief in the larger vision. The ability to tell a compelling story of massive opportunity and show early progress will weigh heavily in your favor.

Final Thoughts

Pre-seed due diligence may feel daunting, but remember: investors aren’t expecting a fully formed company. They’re looking for strong early signals—clear financial understanding, customer validation, an incredible team, and a vision for growth.

By staying organized and preparing in advance, you can approach due diligence with confidence, knowing you’ve built a solid foundation for your startup’s future.

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