Due Diligence Checklist: What Indian VCs Verify Before Signing Your Term Sheet

What Happens Between "We're Interested" and "Here's Your Term Sheet"

When a VC tells you they are interested in your startup, the fundraising process is only beginning. What follows is a due diligence process — a structured investigation into every claim you made in your pitch deck. For Indian founders unprepared for this process, it can be a nerve-wracking period of document requests, reference calls, and technical audits. For founders who have prepared proactively, it is a smooth confirmation exercise that accelerates deal closing.

This guide breaks down exactly what Indian VCs verify during due diligence, organized by category, and provides a preparation checklist so you are never caught off guard.

Category 1: Financial Due Diligence

Financial DD is the most intensive part of the process for any company with meaningful revenue. VCs verify:

Revenue Quality and Recognition

• Bank statements for the past 12-24 months (actual cash inflows vs. invoiced amounts)
• Customer-by-customer revenue breakdown — identifying concentration risk (no single customer should exceed 20-25% of revenue)
• Deferred revenue vs. recognized revenue breakdown
• MRR/ARR reconciliation with your pitch deck claims
• Invoices and contracts for top 10 customers

Unit Economics Verification

• Marketing and sales spend by channel over past 12 months
• New customers added per month (to cross-check CAC calculations)
• Gross margin calculation by product line
• Churn calculation methodology and underlying data
• Cohort retention analysis (month-1, month-3, month-6 retention by acquisition cohort)

Cost Structure and Burn

• Monthly operating expense breakdown by category
• Payroll details (headcount, salaries, ESOP grants)
• Cloud and infrastructure costs (especially for SaaS)
• Vendor contracts and commitments (any multi-year obligations?)
• Outstanding liabilities, loans, or related-party transactions

Category 2: Legal Due Diligence

Legal DD covers corporate structure, IP ownership, and any existing obligations or disputes. Red flags here can kill or significantly restructure deals.

Corporate Structure

• Certificate of Incorporation and MCA filings
• Cap table (fully diluted) — including all SAFEs, Convertible Notes, CCDs, ESOPs
• Shareholder Agreement (if any existing investors)
• Articles of Association
• Board resolutions authorizing fundraising

Intellectual Property

• Technology Assignment Agreements from all co-founders (confirming IP belongs to the company, not individuals)
• Employee IP Assignment agreements for all engineering hires
• Any existing patent applications or trademark registrations
• Open-source software inventory and license compliance
• Third-party software licenses used in the product

Commercial Contracts

• Customer contracts (are they assignable? Do they include termination for convenience clauses?)
• Key vendor and supplier agreements
• Pending litigation, disputes, or regulatory notices
• Any exclusivity obligations that restrict business development

Category 3: Technical Due Diligence

For tech companies, VCs increasingly conduct technical DD through their internal engineering teams or external technical advisors. They evaluate:

• Code Quality: Architecture reviews, code coverage, documentation practices
• Technology Choices: Are the frameworks and infrastructure choices scalable? Is there excessive technical debt?
• Security Practices: Data encryption, access control, security testing history, any breach history
• Data Infrastructure: How is customer data stored, processed, and protected? DPDP compliance (India's Digital Personal Data Protection Act)
• Uptime and Reliability: Historical SLA performance; incident response processes
• Vendor Dependency: Concentration risk on specific cloud providers, APIs, or third-party services

Category 4: Market and Competitive DD

• Independent customer reference calls (VCs call your customers directly — prepare them)
• Competitive landscape verification — do any undisclosed competitors exist?
• Market size source validation (is your TAM credibly sourced?)
• Channel partner and distribution partner verification
• Expert network calls with industry practitioners to validate market assumptions

Category 5: Team and Founder Background Checks

• Employment history verification (LinkedIn cross-checked with actual employment records)
• Educational credential verification
• Criminal and credit background checks for all co-founders
• Reference calls with former employers, colleagues, and investors (from prior ventures)
• Co-founder agreement documentation (equity vesting schedule, roles, dispute resolution)

Building Your Data Room: The Pro Approach

The most effective preparation strategy is building a data room before your first investor meeting. A well-organized data room demonstrates operational maturity and dramatically accelerates the DD process:

• Use a secure document sharing platform (Google Drive with access control, Notion, or dedicated platforms like DocSend or Dropbox Sign)
• Organize into clearly labeled folders: Financials, Legal, Product, Team, Customers, Market Research
• Version-control all documents with dates
• Include a document index at the root level
• Never include documents with errors — have a CA or legal advisor review financial and legal materials before sharing

Founders who send investors a clean, comprehensive data room within 48 hours of the first positive meeting signal an operational culture that investors want to back. Those who scramble for weeks to collect basic documents signal the opposite.