What Documents Do Investors Ask for During Due Diligence?

Investor due diligence is often the point at which a fundraising process becomes much more detailed. Once an investor is seriously evaluating a company, management may be asked to provide a broad set of financial, corporate, commercial and transaction-related documents.

Why Investors Request Detailed Documentation

Due diligence allows an investor to test the information presented during fundraising discussions and understand the risks associated with the proposed investment.

It is therefore important for companies to prepare before the process begins. A structured Transaction Due Diligence readiness process can help management identify missing or inconsistent information before an investor begins reviewing the company.

1. Historical Financial Statements

Investors commonly review the company's historical financial performance to understand revenue growth, profitability, cash flow and financial stability.

Depending on the company, documents may include:

• audited financial statements;
• profit and loss statements;
• balance sheets;
• cash-flow statements;
• management accounts; and
• supporting schedules for major financial items.

2. Financial Projections and Operating Model

Investors usually want to understand not only historical performance but also management's expectations for the future.

Companies may therefore need to provide:

• revenue projections;
• cost and margin assumptions;
• working-capital forecasts;
• capital expenditure plans;
• cash-flow projections;
• funding requirements; and
• key operating assumptions.

These projections should be supported by a structured financial model rather than isolated growth estimates.

3. Cap Table and Shareholding Information

Investors need a clear understanding of who owns the company and how the proposed investment may affect ownership.

This may include:

• current shareholder details;
• shareholding percentages;
• previous investment rounds;
• convertible securities;
• employee option pools where applicable; and
• other rights attached to existing securities.

4. Corporate and Legal Records

Investors may request documents that establish the company's legal existence, ownership and corporate structure.

Examples can include incorporation documents, constitutional records, board or shareholder approvals, statutory records and information relating to subsidiaries or group companies.

5. Customer and Revenue Information

Revenue quality is often a major area of investor review.

Investors may request information relating to:

• major customers;
• customer concentration;
• revenue by customer or business segment;
• recurring versus one-time revenue;
• customer contracts;
• renewal or retention trends; and
• sales pipeline information.

6. Supplier and Vendor Information

Depending on the business model, investors may also review major suppliers, vendor concentration, payment terms and critical supply relationships.

This is particularly relevant where the company depends heavily on a small number of suppliers or has long procurement cycles.

7. Debt and Banking Information

Investors generally want visibility into the company's existing financing obligations.

Relevant information may include:

• loan agreements;
• debt schedules;
• interest rates;
• security or collateral arrangements;
• repayment obligations;
• bank statements; and
• other material financing arrangements.

8. Tax Information

Investors may request tax filings, tax assessments, indirect tax records, outstanding tax matters and related supporting information.

Any unresolved issue should be identified early so management understands how it may affect the transaction.

9. Material Contracts

Material agreements can reveal important commercial rights and obligations.

Investors may review:

• major customer contracts;
• supplier agreements;
• distribution agreements;
• licensing arrangements;
• partnership agreements;
• leases; and
• other significant commercial commitments.

10. Employee and Management Information

Management capability is an important part of many investment decisions. Investors may request information about key leadership, organisational structure, senior employment arrangements and employee incentive plans.

11. Intellectual Property and Technology Records

For technology, consumer, manufacturing and IP-led companies, investors may review ownership of trademarks, patents, software, licences and other intellectual property.

The company should be able to demonstrate that strategically important intellectual property is appropriately owned, licensed or protected.

12. Use of Funds

Investors usually want a clear explanation of how the proposed investment will be deployed.

A use-of-funds schedule may include allocations toward:

• working capital;
• production capacity;
• new-market expansion;
• technology development;
• sales and distribution;
• team expansion; or
• other strategic initiatives.

This should connect directly with the company's capital raising plan.

Organise the Information Before Investors Ask

Companies should not wait for an investor's diligence request before beginning to organise their records.

Preparing in advance allows management to:

• identify missing documents;
• reconcile inconsistent financial information;
• resolve avoidable gaps;
• prepare explanations for unusual items; and
• respond to investor requests more efficiently.

A well-organised data room can also create a better impression of management discipline during the transaction process.