Startup due diligence checklist for angel investors and family offices

What a startup due diligence checklist should cover

A seed-stage diligence checklist for an angel, syndicate lead or family office covers seven areas: the entity and who owns the IP, the founders, whether the technology is built or claimed, customers and revenue, the market including the cheap alternatives, the deal terms, and legal and regulatory exposure. The checklist is only useful if it ends in a written verdict.

The list below is ordered by what kills deals most cheaply. Checking the entity chain takes an hour and can end a deal on its own; a market study takes a week and rarely does. Work top to bottom and stop when you find something that cannot be fixed before closing.

1. The entity and the IP

Confirm that the company raising is a real, properly formed entity, that it is the entity your money goes into, and that it owns the intellectual property the business depends on. Ask for the certificate of incorporation, the current cap table, and signed invention-assignment agreements from every founder and early engineer.

The common failure is IP that sits somewhere else: with a founder personally, with a founder's previous employer, with a university lab, or, for Israeli companies, in a local entity that has grant obligations attached. If a founder built the first version while employed elsewhere, ask for that employer's release or a lawyer's view of the assignment clause. For Israeli companies, see how to diligence an Israeli startup as a US investor.

2. The founders

Verify each founder's stated background against sources the founder did not write: prior employers, degrees, prior companies and how they ended, litigation and regulatory records, and people who worked with them. Reference calls matter most, and the useful ones are the references the founder did not give you.

Prior companies deserve particular attention. A founder whose last company "was acquired" may have sold it for less than the money raised; one who "stepped back" may have been removed. Neither is disqualifying, but the story should match the record, and a founder who shades the record in a pitch will shade it in a board meeting.

3. Built versus claimed

Separate what the product does today from what the deck says it will do. Ask for a live demo run by the technical founder, not a video, and ask what is built in-house versus licensed, open-source or called from another company's API. For AI companies, ask what data the company owns that a competitor could not buy.

If you cannot read architecture or code yourself, this is the section where an outside technical read pays for itself. The failure mode is not fraud; it is a thin layer over someone else's product, priced as if it were the product. More on this in can you use AI for startup due diligence.

4. Customers and revenue

Confirm that revenue is real, recurring and not concentrated in one friendly customer. Ask for the customer list with contract values, speak to two customers the founder picks and one the founder did not pick, and reconcile the deck's revenue figure with bank statements or the accounting system.

Watch the labels: pilots counted as customers, letters of intent counted as contracts, annualized one-month peaks counted as ARR, and revenue from the founders' own network.

5. Market and alternatives

Size the market bottom up (how many buyers, at what price) rather than accepting a top-down industry figure, and list what a customer would do if this company did not exist. The most dangerous competitor at seed is usually not another startup; it is a free feature in a product the customer already owns.

6. Deal terms

Read the terms against the stage. Check that the round label matches the price, that a post-money SAFE's cap translates into the ownership you expect, how many other SAFEs and notes are outstanding, what the option pool does to your stake, and whether you get pro-rata and information rights.

Y Combinator's post-money SAFE fixes the holder's ownership at conversion regardless of other SAFEs raised, which is why the cap is the number to model. A round called "seed" at a pre-money that prices like a Series A is common enough to check every time.

7. Legal and regulatory

Flag, rather than resolve, the questions only counsel can answer: foreign-investment review, export controls and sanctions for defense and dual-use companies, sector regulation, pending litigation, and open-source license obligations. The diligence job is to know these questions exist before you wire; the lawyer's job is to answer them.

How much time is enough

More than most investors spend. The best-known data point is Robert Wiltbank and Wade Boeker's 2007 study of 539 angels and 1,137 exits for the Kauffman Foundation and the Angel Capital Education Foundation, in which 52% of exits returned less than the money invested. The median deal got 20 hours of diligence. Exits from deals above that median returned 5.9 times the money invested, against 1.1 times for deals below it, and the top quartile, with more than 40 hours, returned 7.1 times. The authors are careful to call this a correlation and to say the quality of the hours probably matters as much as the count. (You will also see it said that the Angel Capital Association recommends 40 hours per deal; its 2007 best-practice guidance on diligence gives no hour figure.) Institutional venture firms spend far more; a survey of VCs by Gompers, Gornall, Kaplan and Strebulaev found that the average firm spends 118 hours on due diligence over an average of 83 days from first meeting to close, and calls 10 references; early-stage firms average 81 hours and 8 references.

Few individual investors have that time for every deal, which is the argument for a checklist that front-loads the cheap, decisive checks, and for spending real hours only on the deals that survive them.

Write it down: the one-page verdict

Diligence that is not written down does not survive the next conversation with the founder. The format we use and recommend is the one-page verdict: a verdict in one of four words (invest, invest with conditions, pass for now, pass), the three things that would change it, the cheapest experiment to run before wiring, and a score on three independent axes (business, integrity, and fit to your own criteria).

Keeping the three axes separate is the point. A strong business with a founder-integrity problem should read as exactly that, not average out to "promising". The evidence behind the verdict goes on the following pages, with every claim sourced and every inference labeled as one.

When to bring in an outside read

If you work through this list and the open items are the ones you cannot close yourself (the codebase, the cap table mechanics, an Israeli grant agreement, a founder's history in another country), an independent read costs a small fraction of the check. Olivent Diligence runs this checklist on a fixed clock and delivers the one-page verdict plus the evidence: a Pre-Wire Screen is $2,500 in 48 hours, a Full Diligence $8,500 in five business days, paid only by the investor and never by the company.