No matter where your startup is at in its development cycle, it must undergo due diligence before raising capital. Without proper due diligence, you could end up with a bad investment.

Investors typically require you to provide documentation for your team members, organizational charts, employment agreements and inventor assignment agreement. They also want to learn about the customer base and competition.

The Angel Investor Due Diligence Checklist Every Investor Needs

Angel investing is an exciting way to get involved in the startup ecosystem and potentially earn high returns. However, it can also be a risky venture, with many startups failing to gain traction and investors losing their money. To maximize the chances of success and minimize the risks, it’s essential to conduct thorough due diligence before making any investment decision. In this article, we’ll provide you with the angel investor due diligence checklist every investor needs.

1. Financial Due Diligence

Angel investors and venture capitalists carry out due diligence to verify a business is run efficiently. This process helps them identify any investment risks which could hinder the company from reaching its full potential.

Investors often become excited by the potential of a product, service or technology; however, they need to assess its real-world performance and viability. Furthermore, they want to know which risks are material – those which could potentially cause your startup’s demise.

For a new search engine, this could include researching its competitive environment and how easy it would be to duplicate the product. Furthermore, they will want to determine if the service is scalable and has adequate IP protection.

Entrepreneurs must collect as much information as possible before pitching to investors, in order to avoid costly errors and save time during the fundraising process.

Financial due diligence allows investors to know whether the business is run efficiently.

2. The Company’s Business Model

When pitching your startup to investors, you want them to believe that your product or service is worth investing in. That’s why the due diligence process is so essential.

Though you may have presented your pitch as a high-level overview of your business, due diligence will go much deeper and often wider than you could ever imagine. Throughout this process, you’ll be asked to explain every detail involved in creating your product or service as well as answer questions about your company and operations.

Luckily, there’s a straightforward checklist you can use to guarantee your business is ready for investor requests. This list, which includes the documents listed below, will keep you organized throughout the due diligence process.

Additionally, be prepared for any potential issues that might arise. For instance, if an investor feels your contract exposes the company to unreasonable risk, they might require you to negotiate an amended agreement that reduces that exposure. This process can take time and be disruptive.

3. Founders and Management Team

Angel investors or venture capitalists looking to invest in a startup have already assessed the business and determined which ones merit investment. Now it’s time for due diligence – an investigation of the business to verify if the founder’s story rings true. This process helps ensure your investment decision will be successful and provide you with peace of mind during this critical stage.

Prepare a comprehensive checklist ahead of time to identify potential issues before they escalate into legal troubles, saving your firm both time and money while looking more professional in the eyes of investors. Whether raising seed investment or Series D funding round, this list contains essential materials needed for conducting an exhaustive evaluation of potential partners. To keep organized throughout this entire process, utilize DocSend Spaces for document gathering and sharing that’s seamless.

The angel investor should evaluate the managemnt team and founders

4. Competitive Analysis

When angel investors evaluate potential investment opportunities, conducting a thorough competitive analysis is vital. Understanding the competitive landscape helps investors assess the market positioning of a startup, identify its unique value proposition, and evaluate its growth potential. Here are key considerations for angel investors when performing a competitive analysis:

Market Research

Investors should begin by conducting comprehensive market research to gain insights into the industry landscape and target market. This includes identifying competitors, understanding market size and growth trends, and evaluating customer needs and preferences. Market research provides a foundation for understanding the competitive dynamics and market opportunities.

Competitor Identification

Angel investors should identify and evaluate direct and indirect competitors of the startup. Direct competitors offer similar products or services to the same target market, while indirect competitors may provide alternative solutions or target a slightly different customer segment. Identifying competitors helps investors understand the level of competition and potential challenges the startup may face.

Differentiation and Value Proposition

Assessing the startup’s unique value proposition and how it differentiates from competitors is critical. Investors should evaluate the startup’s competitive advantages, such as innovative technology, proprietary processes, or intellectual property rights. Understanding the startup’s unique selling points helps investors gauge its potential market share and competitive advantage.

Market Share and Positioning

Investors should evaluate the market share and positioning of the startup and its competitors. This involves analyzing factors such as pricing strategies, distribution channels, marketing efforts, and customer acquisition. Understanding the startup’s current position relative to competitors helps investors assess its growth potential and market penetration opportunities.

SWOT Analysis

Conducting a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis provides a comprehensive view of the startup’s competitive landscape. This analysis helps investors identify the startup’s strengths and weaknesses, as well as potential opportunities and threats in the market. It assists in assessing the startup’s ability to capitalize on market opportunities and address potential challenges.

Growth and Expansion Strategies

Investors should evaluate the growth and expansion strategies of the startup and its competitors. This includes assessing factors such as product development pipelines, geographic expansion plans, partnerships, and potential market disruptions. Understanding the competitive strategies of the startup and its competitors helps investors evaluate the startup’s potential for sustainable growth.

Barriers to Entry

Investors should identify the barriers to entry in the industry and evaluate how they may affect the startup’s competitive position. Barriers to entry can include factors such as high capital requirements, regulatory hurdles, intellectual property protection, or established brand loyalty. Assessing barriers to entry helps investors understand the startup’s potential to maintain a competitive edge.

By performing a comprehensive competitive analysis, angel investors can make informed investment decisions. It provides valuable insights into a startup’s market positioning, growth potential, and competitive advantages. Collaborating with industry experts and leveraging market research reports can enhance the effectiveness of the competitive analysis process for angel investors.

5. Intellectual Property Due Diligence

Investors interested in investing in your startup typically request to view the intellectual property rights of the company. This includes patents, trademarks, copyrights and any other IP assets you may possess.

During the due diligence process, investors may request all patent applications that you have filed. This helps them assess whether or not your business has any legal right to sell the products it’s creating.

Unfortunately, startups often fail to file patents before raising money – an alarming sign. This is particularly true for early-stage companies.

Startup companies rely heavily on their IP assets for financial success, so having ownership rights to all of your IP assets is paramount to maintaining that value.

To protect your investment, ensure all of your company’s IP is legally owned and has been filed for patents. Furthermore, make sure there isn’t any security interest on it; this could be a major red flag since it allows so-called angel investors or commercial banks to take back your IP before any equity investors do.

Investors interested in investing in your startup typically request to view the intellectual property rights of the company.

7. Legal Due Diligence

Angel investors play a crucial role in funding early-stage startups and supporting their growth. As angel investors provide capital to these companies, it is essential for them to conduct thorough legal due diligence to safeguard their investments and mitigate potential risks. Legal due diligence involves a comprehensive examination of a startup’s legal documentation and potential liabilities. Here are some key aspects of legal due diligence that angel investors should consider:

Corporate Governance

Angel investors should review the startup’s corporate structure, bylaws, shareholder agreements, and board minutes. This helps ensure that the company has appropriate governance practices in place and that the decision-making processes align with the investor’s expectations.

Contracts and Agreements

Reviewing the startup’s contracts and agreements is essential to understand its legal obligations and commitments. This includes examining customer contracts, supplier agreements, employment contracts, and any licensing or partnership agreements. Angel investors need to assess the terms, risks, and potential liabilities associated with these contracts.

Regulatory Compliance

Compliance with applicable laws and regulations is crucial for startups. Investors should ensure that the company is in compliance with industry-specific regulations, consumer protection laws, data privacy regulations, and any other relevant legal requirements.

Litigation and Legal Risks

Angel investors should conduct a search for any ongoing or past litigation involving the startup. This helps identify potential legal risks and liabilities that could impact the company’s financial stability or reputation.

By performing legal due diligence, angel investors can gain a comprehensive understanding of the legal landscape surrounding the startup. This knowledge allows them to make informed investment decisions, negotiate favorable terms, and mitigate potential legal risks that could impact their investment returns. Collaborating with experienced legal professionals can greatly assist angel investors in navigating the complexities of legal due diligence.

8. The Startup’s Marketing Approach

Investors want to see evidence and financial statements that back up your claims. This includes copies of contracts confirming customer commitments, testing results that back up performance claims, as well as market research findings.

Investors also need to verify the startup has a strategy for user scalability, an essential issue in software products as it ensures an app or service won’t crash under heavy demand. Venture capitalists usually hire technical specialists to perform comprehensive due diligence on their investments.

Conducting due diligence may take some time, but it’s essential for making an informed investment decision. That is why venture capital firms and angel investors require a checklist of due diligence requirements for each company they evaluate.

This checklist can help you stay organized throughout the process, so be sure to download it and use it as a guide before beginning your own due diligence processes. Afterward, store all completed checklists in a central data room (like DocSend) so that both you and your team have easy access to them when needed.


Angel investing can be a lucrative opportunity, but it’s not without risks. Conducting thorough due diligence is crucial to minimizing risks and making informed investment decisions. The angel investor due diligence checklist includes evaluating the team, market, product/service, financials, customers, and partnerships, and conducting comprehensive due diligence. By following this comprehensive checklist, you’ll be equipped with the tools and knowledge you need to invest wisely as an angel investor.