Private Company Due Diligence: A Practical Checklist

Due diligence is the work you do before you wire the money. It won't eliminate risk — nothing does in early-stage private investing — but it's the difference between taking a calculated risk and taking an uninformed one. This checklist is structured for accredited investors doing meaningful diligence on a private company deal: a Reg D offering, a crowdfunding raise you're treating seriously, or a secondary purchase. Use it as a scaffold, not a script. Not every question will apply to every deal, and some answers will be unavailable. What you learn from what's missing is often as useful as what you find.

1. Team

Most early-stage bets are bets on the founders as much as the business. The company's product will change; the team executing it may not. Start here.

• What is the founding team's relevant experience — have they built and scaled something in this domain before, or is this their first attempt?
• Are the founders full-time? If not, what is the timeline and trigger for them to go full-time?
• What does the vesting schedule look like for founders? Unvested founders who leave early can leave large blocks of shares on the cap table as dead weight — or create misaligned incentives.
• Has the team worked together before? How did that go?
• Are there any gaps in the founding team that the raise is specifically intended to fill? If so, how long has that gap existed?
• What does the company's LinkedIn and professional history actually show — and does it match the pitch?
• Have any founders left previously? What were the circumstances?

2. Product and Market

A compelling demo is not a business. Probe whether the product solves a real problem for a real customer segment at a price that makes sense.

• What specific problem does this product solve, and for whom exactly? Is the target customer well-defined or still being discovered?
• Is there evidence that customers want this — not just interest or sign-ups, but paying customers, contracts, or letters of intent?
• What is the total addressable market (TAM), and how was it calculated? Be skeptical of top-down market sizing ("1% of a $10B market") without bottom-up validation.
• Who are the direct competitors? Who are the indirect ones, including "do nothing" as the default? How does the company differentiate?
• What is the product's stage — idea, prototype, beta, revenue-generating? Does that match how the pitch frames it?
• Is there any intellectual property — patents, proprietary data, exclusive licenses — that creates defensibility, or is the moat primarily execution?

3. Financials

Numbers don't lie, but they can mislead. Look at the actual financial documents, not just the highlighted metrics in the pitch.

• What is the current monthly revenue run rate, and what has the growth trajectory looked like over the past 12 months?
• What is the monthly cash burn, and how many months of runway does the company have at its current rate?
• What are the gross margins? For software businesses, margins below 60% deserve explanation. For hardware or marketplace businesses, the benchmark differs.
• What is the customer acquisition cost (CAC), and how does it compare to the lifetime value of a customer (LTV)? An LTV:CAC ratio below 3x is a yellow flag in most consumer and B2B SaaS models.
• Are revenues recurring or transactional? What does churn look like?
• Has the company been audited or reviewed by an independent accountant? For Reg CF deals, the SEC requires financial statements — but the level of scrutiny depends on the raise size.
• What assumptions drive the financial projections? Are they grounded in current performance, or do they require step-changes that haven't been explained?

4. Cap Table and Deal Terms

Understanding the instrument you're buying and where you sit in the ownership structure is separate from evaluating the business itself — but equally important. The article on reading a cap table covers this territory in detail; here's the checklist version.

• What share class will you receive — common, preferred, or a convertible instrument — and where does it sit in the liquidation waterfall?
• What is the fully diluted share count, including all outstanding options, warrants, SAFEs, and convertible notes?
• What is the total liquidation preference stack — how much preferred capital must be returned before common shareholders participate in any exit proceeds?
• For SAFEs and convertible notes: what is the valuation cap, the discount rate, and what happens if a qualifying round never occurs?
• Who are the existing investors, and how much have they invested to date? Have any lead investors passed on this round, and if so, why?
• What is the minimum and maximum raise for this offering, and what happens if the minimum isn't met?
• Are there any side letters, special rights, or preferential terms granted to specific investors that aren't reflected in the standard offering documents?

5. Use of Proceeds

A raise is a hypothesis about what capital can unlock. Evaluate whether that hypothesis is coherent.

• What specifically will the raised capital be used for, broken down by category (engineering, sales, marketing, G&A)?
• Does the use of proceeds match the company's stated next milestone? Capital allocated to marketing before a product is fully built is a mismatch worth flagging.
• How long will this raise extend the runway? What milestone is the company expected to hit before it needs to raise again?
• What happens if the company raises at the minimum vs. the maximum? Is there a materially different operating plan for each scenario?

6. Legal and Regulatory

Most early-stage companies have clean legal profiles, but some have meaningful exposure that won't surface unless you look for it.

• Is the company incorporated in the right jurisdiction for its business? Delaware C-corps are standard for VC-backed companies; other structures may complicate future fundraising.
• Are there any pending or threatened lawsuits, regulatory investigations, or IP disputes?
• Does the company operate in a regulated industry (fintech, healthtech, cannabis, etc.)? If so, what licenses does it hold, and are there any compliance gaps?
• Do all employees and contractors have signed IP assignment agreements? Unassigned IP created by an early contractor is a common and serious problem.
• Has the company properly disclosed all material information required by the securities exemption it's using — Form C for Reg CF, offering circular for Reg A+, or PPM for Reg D?

7. Traction and Social Proof

Independent validation is harder to fake than self-reported metrics. Look for signals that don't originate with the company.

• Can you find any third-party press, analyst coverage, or customer case studies that corroborate the company's claims about its product or growth?
• Are there customer reviews, app store ratings, or public feedback that give you an unfiltered sense of product quality?
• Who are the notable investors or advisors, and can you verify their involvement is real and current — not just a name on a slide?
• Has the company won grants, been accepted to competitive accelerators, or been recognized in its industry? These aren't proof of success, but they're independent filters.

How to Use This Checklist

Not every item will be answerable for every deal. A pre-revenue company won't have LTV:CAC data. A Reg CF raise may not share full cap table details. That's normal, and it's not a reason to pass automatically.

What matters is the pattern of what you can and can't find. A company that's transparent about its burn rate but vague about its use of proceeds is telling you something. A founding team with strong domain experience but no operational background is a different risk profile than one with the inverse. A clean legal structure with no traction is different from strong traction with a messy cap table.

Due diligence doesn't produce a verdict. It produces a clearer picture of the specific bet you'd be making — and whether the terms of that bet reflect the risk you're taking on. Pair this checklist with the articles on

For the regulatory and deal-structure context behind what you're reading in these documents, the articles on securities exemptions and common deal structures cover the framework. For evaluating what you're reading in the offering documents, the article on how to evaluate a private company is the conceptual companion to this one.

This article is for educational purposes only and does not constitute investment, legal, or financial advice. Private market investing involves significant risk, including the potential loss of your entire investment. Consult a qualified financial or legal advisor before making investment decisions.