Glossary
Due Diligence
The investor's investigation of a startup before finalising an investment — covering financials, legal, product, team, and market.
By Amit Tyagi, Fitoor Capital · AletheiaAI Glossary
Definition
Due diligence (DD) is the comprehensive investigation an investor conducts before closing an investment. It verifies that everything the startup claimed in its pitch is accurate and surfaces risks the founder may not have highlighted. DD is the period between signing a term sheet and wiring money.
Due diligence typically covers: financial DD (revenue verification, unit economics, historical financials), legal DD (company incorporation, IP ownership, contracts, cap table accuracy), technical DD (code quality, infrastructure, security), commercial DD (customer reference calls, market validation), and founder background checks.
Founder tip: prepare a data room in advance. A clean, comprehensive data room signals operational maturity and speeds up DD from 4–6 weeks to 2–3 weeks.
India Context
Indian due diligence has specific requirements: DPIIT registration verification, FEMA compliance for any foreign capital received, GST registration and filings, company secretarial records (minutes, resolutions, ROC filings), and increasingly, checks on Provident Fund and ESIC compliance for startups with employees.
A common Indian DD finding: informal contracts with early customers (WhatsApp agreements, verbal commitments). Institutional investors will require written contracts with revenue recognition terms before closing. Founders should clean this up before starting the DD process.
Example
An investor signs a term sheet and begins DD. They request: 2 years of bank statements, all customer contracts (15 contracts reviewed), cap table with board resolutions, ESOP grant letters, intellectual property assignments from founders and employees, GST filings, and references from 3 customers. The process takes 5 weeks, one issue (missing IP assignment from a contractor) is resolved, and the round closes.
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