Key points
- VC due diligence runs in two parts: business diligence before the term sheet, legal and financial confirmation after it.
- A typical Series A takes four to ten weeks from first partner meeting to closing.
- The files opened first are the financial model, monthly accounts, cap table and the largest customer contracts.
- Most delays come from a cap table that does not reconcile, missing IP assignments or a model that does not tie to the accounts.
- A prepared data room with Q&A can cut the confirmatory phase from weeks to days.
Venture capital due diligence is the work a fund does to confirm that what a founder says in the pitch is true, and that nothing in the company’s paperwork will cause problems later. It is lighter than private equity diligence, because VCs buy a minority stake in an early company, but it follows a clear pattern.
The stages
A typical Series A diligence timeline
Typical length: about 10 weeks.
- First meetings (2 weeks)Partner calls, product demo, deck and a teaser folder. The fund decides whether to spend real time.
- Business diligence (2 weeks)Market, metrics, customer calls, the financial model. Most of the work in the data room happens here.
- Partner meeting and term sheet (1 week)The full partnership votes; a term sheet is signed.
- Confirmatory diligence (3 weeks)The fund's counsel works through legal, cap table, IP and employment files and sends a question list.
- Documents and closing (2 weeks)Share purchase or stock purchase agreement, disclosure schedules, signing and funding.
Seed rounds compress this to two to five weeks, often with no separate confirmatory phase. Series B and later rounds add a quality of earnings review and deeper commercial diligence, and can take eight to twelve weeks.
What VCs check, folder by folder
| Area | What they check | Files they open |
|---|---|---|
| Team | Backgrounds, references, who owns what | Biographies, founder agreements, vesting |
| Market | Size, growth, competition | Market sizing sources, competitor notes |
| Product | Does it work, can it scale | Demo, roadmap, architecture overview |
| Traction | Revenue quality, retention, pipeline | Revenue by customer, cohorts, pipeline |
| Financials | Burn, runway, model assumptions | Monthly P&L, cash, financial model |
| Cap table | Who owns what after the round | Cap table, SAFEs, notes, option grants |
| Legal and IP | Clean ownership, no hidden liabilities | IP assignments, material contracts, litigation |
The order of the table is roughly the order of the work. Business diligence decides whether there is a deal; legal and cap table diligence decides whether it closes on time.
How the data room is used
During business diligence a VC associate opens the room daily: model, metrics, customer list. During confirmatory diligence the fund’s lawyers take over, work through every folder and send a numbered question list. A room with a Q&A module keeps those questions, the answers and the approvals in one place; without one, the list lives in email and spreadsheets and answers drift apart.
Data rooms listing the features VC counsel rely on
Out of the 16 platforms we review.
How founders can speed it up
- Reconcile the cap table to signed documents and include a pro forma for the new round (our dilution calculator gives a first check).
- Make the model tie to the monthly accounts, with an assumptions tab investors can follow.
- Collect IP assignments from every founder, employee and contractor who wrote code or created brand assets.
- Prepare a list of the ten largest customers with contract dates, value and renewal terms.
- Write short answers to the questions every fund asks: use of funds, hiring plan, runway (see the runway calculator).
- Set up Q&A in the data room before counsel sends the first list.
The fund’s side: diligence on many companies at once
For the VC, diligence is a pipeline. An associate may work through several startup rooms in the same week. Funds therefore value rooms that look alike: a numbered index, consistent file names, fast viewers and a search that works across folders. Founders who use the standard ten-folder index make the associate’s job easier, and that shows in how quickly questions come back. Funds that also raise from limited partners run their own rooms on the other side; see our venture capital data room page.
The numbers VCs recompute
Associates do not take the deck’s metrics on trust. They rebuild a handful of numbers from the files in your room and compare them with what you presented. Knowing which ones, and running them first, removes the most common source of awkward questions.
| Metric | How the VC computes it | Files they use | Check it with |
|---|---|---|---|
| ARR and growth | Billing export, month by month | Billing export, revenue by customer | MRR growth calculator |
| Net revenue retention | Same customers, start versus end of year | Cohort table | NRR calculator |
| Burn multiple | Net burn / net new ARR | Monthly P&L, ARR bridge | Burn multiple calculator |
| Unit economics | LTV / CAC, CAC payback | Sales and marketing costs, churn | LTV to CAC calculator |
| Runway | Cash / monthly net burn | Bank statements, budget | Runway calculator |
| Ownership after the round | Pro forma cap table | Cap table, SAFEs, notes, pool | Cap table calculator |
Try the burn multiple with your own numbers. Investors use it to compare companies at different sizes: how many dollars of burn buy one dollar of new recurring revenue.
Use the same period for both inputs, a quarter or a year.
Business diligence vs confirmatory diligence
| Business diligence | Confirmatory diligence | |
|---|---|---|
| When | Before the term sheet | After the term sheet |
| Who | Partner, associate, sometimes experts | Fund counsel, sometimes accountants |
| Question | Is this a good investment? | Is everything as presented? |
| Main files | Model, metrics, customer list, product | Corporate records, cap table, IP, contracts, employment |
| Typical output | Investment memo for the partnership | Legal question list and diligence report |
| What can go wrong | The fund passes | The close is delayed or terms change |
The questions counsel always send
Fund lawyers work from a standard request list. The wording varies, but the same items appear at almost every Series A. Having them answered in writing, with links to the files, often halves the confirmatory phase.
- List all equity issued, with board approval and the date for each grant.
- Confirm every current and former employee and contractor has signed an IP assignment.
- Provide all SAFEs, notes and side letters, with a conversion schedule.
- List material contracts above a set value and any change of control clauses.
- Describe any litigation, threatened claims or regulatory contact.
- Provide the privacy policy, data processing agreements and any security incidents.
- Confirm tax filings are current and describe any open issues.
- List any debt, liens, guarantees or equipment leases.
How long each part takes, by round
Typical weeks from first partner meeting to closing
Midpoints of the ranges in this article.
What a VC diligence memo contains
The output of business diligence is an investment memo for the partnership. Knowing its structure tells founders what to put in the room, because every section needs evidence.
Red flags that end a process
Some findings slow a round; others stop it. These are the ones funds most often cite when they walk away after diligence has started:
- Revenue that does not tie out. ARR in the deck that cannot be rebuilt from billing data.
- Undisclosed liabilities. Litigation, tax issues or debts that appear only in diligence.
- Ownership disputes. A former co-founder or early contributor with a claim on equity or IP.
- Customer concentration hidden in a blended number. One customer behind most of the revenue.
- A cap table that keeps changing. New SAFEs or grants appearing during diligence.
How long does VC due diligence take?
Seed rounds usually take two to five weeks, Series A four to ten weeks and later rounds eight to twelve weeks from first partner meeting to closing.
What is confirmatory due diligence?
The legal and financial checks after the term sheet is signed: cap table, corporate records, IP, material contracts and employment. It confirms there is nothing that changes the agreed terms.
Do VCs talk to customers?
Often, at Series A and later. Funds may ask for three to five reference customers and call them during business diligence.
Can due diligence change the valuation?
Yes. Findings such as lower revenue quality than the deck suggested, or a cap table problem, can lead to a lower price, extra conditions or a delayed close.
Which metrics do VCs recompute in diligence?
Usually ARR and growth, net revenue retention, burn multiple, unit economics, runway and the pro forma cap table, each rebuilt from the files in the data room.
Who pays for the investor's legal diligence?
In many venture rounds the company pays the lead investor's legal fees up to a cap set in the term sheet. Check the fees clause.
What happens if diligence finds a problem?
Most problems are fixed before closing: a missing consent is ratified, an IP assignment is signed. Serious findings can change the price or terms, or end the deal.
