Due diligence covers financial statements, the accuracy of the cap table, existing contracts, who actually owns the company’s intellectual property, any pending litigation, regulatory compliance, and reference checks on the founders themselves. It usually happens after a term sheet has been signed but before money actually moves and the final legal documents are executed — it’s the investor’s chance to verify that everything represented during the pitch is actually true.

Due diligence matters because this is where deals commonly die even after a term sheet looked all but done — most often over a messy or inaccurate cap table, undisclosed liabilities, or intellectual property that turns out not to be properly owned by the company at all. A nuance beginners often miss: diligence isn’t only the investor protecting themselves — a founder doing their own diligence on a prospective investor (their reputation, how they’ve treated founders in past deals, whether their fund actually has money left to invest) matters just as much, and first-time founders frequently skip this side of the process entirely.

🇵🇭 Philippine Example

For Philippine startups, due diligence commonly includes confirming good standing and registration with the Securities and Exchange Commission, verifying Bureau of Internal Revenue tax compliance, and checking that any government grants or incentive programs (for example, from the Department of Trade and Industry or the Department of Science and Technology) were properly documented — in addition to the standard cap table and contract review any investor anywhere would perform.

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