Dealflowhub.ai

The Diligence Gap

Due diligence runs four to eight weeks after a term sheet. Unresolved cap table, IP and contract issues can add just as long again — before anyone has…

Key findings

  • Due diligence typically runs four to eight weeks after a term sheet is signed.
  • A further three to six weeks usually separates a signed term sheet from money in the bank.
  • Unresolved cap table, IP or contract issues can add four to eight weeks on their own.
  • The full Series A cycle commonly runs six to eight months end to end.

Where the time actually goes

Founders tend to budget for the pitch and underestimate everything after it. In practice the post-term-sheet phase is where most of the calendar disappears.

A Series A raise commonly runs six to eight months end to end: four to eight weeks of preparation, six to ten weeks of active pitching, four to eight weeks of due diligence, and a further three to six weeks from signed term sheet to funds received.

Diligence itself covers legal review, financial verification and final documentation. It is largely a confirmation exercise — investors checking that what they were told holds up — which is precisely why unresolved administrative issues are so expensive at that stage.

  • Preparation: 4–8 weeks
  • Active pitching: 6–10 weeks
  • Due diligence: 4–8 weeks
  • Term sheet to close: 3–6 weeks

The avoidable delay

The costly problems are consistent and unglamorous: an uncleaned cap table, unresolved IP ownership, key customer contracts that were never formalised. Guidance to founders puts the penalty at four to eight weeks added during diligence — comparable to the entire diligence phase itself.

The asymmetry matters. These issues take days to fix in advance and weeks to fix under investor scrutiny, because at that point every fix requires counterparties, lawyers and investor sign-off in sequence.

When diligence is formally requested, founders typically have days rather than weeks to produce structured documentation covering financial performance, IP ownership, employment arrangements and commercial momentum. That is not a window in which to start assembling records.

What a complete data room contains

Investor-side guidance converges on a similar structure, and the volume surprises founders raising for the first time: a Series A data room commonly runs to several dozen documents across six broad areas.

The categories are consistent even where the specifics differ by jurisdiction. Corporate records cover incorporation, the cap table and any prior financing instruments. Financial records cover historic performance, current management accounts and the model behind the projections. Legal covers IP assignment, employment and contractor agreements, and material commercial contracts. Product, commercial and team sections carry the remainder.

The single most common gap is IP assignment — particularly where early work was done by contractors, co-founders who have since left, or under a previous employer. It is cheap to resolve at incorporation and expensive to resolve during a raise, because by then the counterparty knows you need it.

  • Corporate: incorporation documents, cap table, prior instruments
  • Financial: historic accounts, management accounts, the model behind projections
  • Legal: IP assignment, employment and contractor agreements, material contracts
  • Commercial: customer contracts, pipeline evidence, key partnerships
  • Product and team: roadmap, architecture summary, org chart and key hires

Preparation as runway

Reframing helps: preparation is not administration, it is runway. Six weeks removed from a raise is six weeks of cash that stays with the business, at the exact point when cash is tightest and negotiating position is most fragile.

A data room assembled before the first pitch also changes the tone of diligence. Answering in hours rather than weeks reads as operational competence, and it removes the drift where an investor's attention moves elsewhere while they wait.

The asymmetry is worth stating plainly. Nobody has ever lost a round for being too well prepared. The reverse is common enough that it has a name.

Sources

Photo: Unsplash.