Startup Due Diligence Checklist for Indian Founders

An investor likes your pitch, asks for access to the data room and then finds that the cap table does not match the filings. A customer contract is unsigned. The revenue in the deck differs from the accounts. Code written by a former freelancer was never assigned to the company.

These are not presentation problems. They are evidence problems, and they can delay or stop an investment even when the business itself is promising.

This startup due diligence checklist helps Indian founders prepare the records behind their claims. The aim is not to make a young company look perfect. It is to make the company understandable, consistent and honest, with a clear plan for fixing known gaps.

What is startup due diligence?

Startup due diligence is the investor’s structured check of the company before completing an investment. The investor and its advisers test whether the business, ownership, finances, intellectual property, contracts, people and compliance position support what the founders have presented.

The depth changes with the stage, cheque size, sector and investor. A pre-seed angel may focus on incorporation, founder ownership, product rights and early customer proof. An institutional seed fund may add financial, tax, employment, technology, data protection and regulatory reviews. A strategic investor may examine commercial dependencies and conflicts more closely.

Due diligence is not the same as the pitch. A pitch explains the opportunity. Diligence tests the evidence.

Startup India says investors assess the customer problem, market, scalability, customers and suppliers, competition, sales, financial assumptions, exit paths and management team. Its official pitch guidance also asks founders to show traction, three-year financials, unit economics, funding need, use of funds and the current equity structure. Those are useful clues to what the supporting diligence records must prove. (Startup India investor guidance, Startup India pitch-deck guidelines)

What should a startup due diligence checklist include?

A practical checklist should cover ten workstreams: company records, ownership, fundraising history, finance, tax, commercial performance, contracts, intellectual property, people, and regulatory or technology risk. Each item needs both a document and an owner who can explain it.

This table is the index, not the full job. The next sections explain how to test each area.

Which company and governance records should founders prepare?

Start with the company’s legal identity and decision history. Collect the certificate of incorporation, memorandum and articles, registered-office details, director records, statutory registers, annual filings, material board minutes and shareholder resolutions.

Do not upload a random archive of every document ever created. Build a clean record of decisions that affect ownership, borrowing, major contracts, related-party arrangements, director appointments, ESOPs and the proposed fundraising.

Run a consistency test across the company name, corporate identification number, registered office, directors, authorised capital and paid-up capital. Compare the latest internal records with filings visible through the Ministry of Corporate Affairs. The MCA portal is the official place to verify corporate records and current filing information.

What if an approval or filing is missing?

Do not backdate or recreate a false history. List the gap, ask a company secretary or lawyer whether it can be regularised, complete the lawful corrective action and retain the supporting record. If correction is still in progress, label it openly in the data room with an owner and expected completion date.

Investors can accept a disclosed administrative gap more readily than a misleading document.

How should founders verify the cap table?

Rebuild the cap table from primary records, not from the latest spreadsheet. Begin with incorporation shares, then trace every allotment, transfer, split, conversion, buyback, cancellation and ESOP grant in date order.

For every entry, link the approval, agreement, payment evidence, certificate or depository record, filing and updated register. Check that the same person or entity is named consistently. Include beneficial ownership information where applicable and have a professional confirm any statutory reporting requirement.

Your cap table should show at least:

• Each shareholder and security class
• Shares or units held and ownership percentage
• Fully diluted ownership, including the agreed ESOP pool and outstanding convertible instruments
• Investment amount and issue price for each round
• Vesting, conversion or exercise terms where relevant
• Special rights that affect control, information, transfer or future fundraising

A simple reconciliation test

Use this calculation for each security class:

Opening securities + securities issued + transfers in − transfers out − cancellations = closing securities

The total closing securities should match the legally issued amount. Transfers change the holder, not the company’s total issued securities. An ESOP pool may affect the fully diluted view even when options have not been exercised, so label issued shares, granted options, ungranted pool and fully diluted totals separately.

Clearly labelled example

Assume the legal records show 10,00,000 equity shares. The founder spreadsheet shows 10,50,000 because it includes a 50,000-option pool as if every option were already a share. The company should not hide the difference by editing one total.

It should present two reconciled views:

That distinction lets the investor calculate ownership on the basis agreed for the round.

• Issued and outstanding shares: 10,00,000
• Fully diluted securities, assuming the full pool: 10,50,000

What financial evidence will investors test?

Investors will usually test whether reported revenue, costs, cash, liabilities and forecasts can be traced to reliable records. Prepare monthly profit and loss statements, balance sheets, cash-flow information, bank statements, ledgers, aged receivables and payables, debt schedules, budgets and the assumptions behind projections.

The most important task is reconciliation. Create a bridge from management numbers to filed accounts and from revenue schedules to bank receipts or payment processor statements. Explain valid differences such as GST treatment, deferred revenue, credit notes, foreign-exchange conversion, pass-through collections or a change from cash to accrual reporting.

Do not describe gross merchandise value, payment volume or customer collections as company revenue unless the accounting treatment supports it. Do not mix signed annual contract value with revenue already recognised. Define every metric once and use that definition in the deck, model and data room.

Which financial questions should the founder answer quickly?

Startup India’s pitch guidelines specifically connect the funding ask with duration, customer and revenue milestones, and possible follow-on capital. A credible data room therefore shows the operational assumptions behind the use-of-funds slide, not merely a total amount. (Startup India pitch-deck guidelines)

• How much unrestricted cash is available today?
• What are gross burn, net burn and remaining runway?
• Which customers contribute most of revenue?
• How much invoiced revenue is overdue?
• Which expenses are recurring, discretionary or founder-related?
• Are there loans, guarantees, liens or commitments not visible in the headline accounts?
• What assumptions drive the next 18 to 24 months of revenue and hiring?
• What milestones will the proposed round fund?

Which tax records belong in the data room?

Prepare the returns and reconciliations that apply to the company, together with challans, tax deduction records, assessment notices and documented responses. Depending on the business, this may include income tax, GST, tax deducted at source, payroll-related obligations and transfer-pricing records.

The Income Tax Department’s current guidance for domestic companies for assessment year 2026-27 lists ITR-6 and, where applicable, audit, international-transaction and TDS-related forms. Applicability depends on the company’s facts, so use the official guidance as a starting point and have a qualified adviser confirm the actual list. (Income Tax Department guidance for domestic companies)

Prepare a one-page tax status note with four columns: obligation, period, filing status and exception. Add a fifth column for the adviser or internal owner. If there is a notice or disputed demand, include the notice, amount, response, present status and management’s treatment in the accounts.

Silence creates more concern than a clearly documented dispute.

How do investors check commercial traction?

They compare the deck’s headline claims with customer-level evidence. Prepare a revenue schedule by month and customer, signed agreements, invoices, collections, churn or retention data, pipeline definitions and a list of credits, refunds or related-party sales.

Separate these categories:

Calling all seven “customers” makes the pipeline look larger for a moment but weakens trust during review.

• Paying customer
• Signed but not live
• Paid pilot
• Unpaid pilot
• Letter of intent
• Qualified sales opportunity
• Early conversation

Clearly labelled SaaS example

A startup claims ₹60 lakh in annual recurring revenue. Its records show ₹3 lakh in current monthly recurring revenue, ₹12 lakh of one-time implementation fees earned during the year and two unsigned proposals worth ₹15 lakh.

The clean presentation is:

This may look smaller than the original claim, but it is decision-useful and defensible.

Also provide evidence for market and competition claims. State the date, geography, segment and source for market figures. Startup India asks founders to explain who will buy, how many possible customers exist and what they may pay. A bottom-up calculation tied to the actual target customer is easier to test than a large global estimate. (Startup India pitch-deck guidelines)

• Current MRR: ₹3 lakh
• Current ARR run rate: ₹36 lakh, calculated as ₹3 lakh × 12
• One-time revenue: ₹12 lakh, shown separately
• Unsigned pipeline: ₹15 lakh, not counted as revenue or ARR

What intellectual property checks matter most?

The company should be able to show that it owns or validly uses the product, code, brand, content, designs, inventions, data and domains needed to operate.

List each important asset, its creator, present owner, protection status and supporting agreement. Check employment and contractor agreements for invention assignment, confidentiality and further-assurance clauses. If a founder created the code or brand before incorporation, document a proper transfer to the company. If open-source software is used, keep an inventory of key components and licences.

Registration is not the only proof of ownership, and an application is not the same as a granted right. Label pending and registered rights correctly. Intellectual Property India provides official public-search and status services for patents, trademarks and designs, which founders can use to cross-check their schedule. (Intellectual Property India)

Common gaps include a domain registered in a former employee’s account, a trademark filed in the founder’s personal name, product designs created without assignment terms and source-code access controlled by an outside agency. Fix access and ownership before they become closing conditions.

Which contracts should founders review?

Prioritise agreements that affect revenue, cost, exclusivity, ownership, data, liability or the ability to complete the funding round. Include customer and vendor contracts, leases, loans, licences, channel partnerships, related-party arrangements and any agreement with a change-of-control or consent clause.

Create a contract summary rather than making reviewers search every PDF. For each material contract, record:

Check that every document is signed by authorised parties and that amendments are attached. A proposal, purchase order and master services agreement may work together, so group them as one contract set.

If much of the business relies on verbal arrangements, convert important commitments into signed records. Do not create documents that pretend to have existed earlier.

• Parties and effective date
• Commercial value and term
• Renewal and termination rights
• Exclusivity or minimum commitments
• Intellectual property and data provisions
• Liability, indemnity and warranty terms
• Assignment, change-of-control or investor-consent restrictions
• Current dispute, breach or overdue amount

What people records should a startup prepare?

Prepare a current organisation chart, founder roles, employment and consultancy agreements, compensation details, confidentiality and IP terms, ESOP grants, vesting schedules, key-person dependencies and open disputes.

The founder story must match the legal relationship. Someone presented as a co-founder may legally be a consultant with no issued equity. A promised ESOP may not have been approved or granted. A senior employee may be serving notice while still shown as active in the deck.

Explain these differences before the investor discovers them. Then decide whether the matter needs a contract, board approval, cap-table update or simply clearer presentation.

Also review whether the company depends on one person for source code, banking access, regulatory knowledge or its largest customer relationship. Due diligence is partly about continuity. Document secondary access, handover processes and hiring plans where concentration is high.

What regulatory, data and dispute checks are needed?

Make a legal and regulatory map based on what the company actually does, where it operates and whose money or data it handles. The right checklist differs for fintech, health, food, education, mobility, gaming, defence, SaaS and consumer businesses.

List every licence, registration, approval, consent, policy and periodic filing the business believes it needs. For each, note whether it is held, pending, not applicable or under review. Keep the analysis and professional advice supporting any “not applicable” conclusion.

For technology and data, prepare a plain-language system overview, data-flow map, access-control process, material security incidents, backup plan, key vendor list and copies of customer-facing privacy and usage terms. Do not claim a certification or security standard unless the scope and validity can be proved.

Maintain a disputes schedule covering legal notices, customer claims, employee complaints, intellectual property objections, regulatory correspondence and threatened proceedings. Include the amount or business effect where it can be reasonably estimated, along with the response and owner.

How should founders build a startup data room?

Build it so a reviewer can find an answer without asking where the document is. A simple numbered structure works well:

Use a master index with document name, period, version date, owner, status and sensitivity level. Give files clear names such as `Customer_Revenue_Schedule_Apr2025-Mar2026.xlsx`, not `Final_v7_new.xlsx`.

Apply staged access. The first stage may contain the deck, model, incorporation evidence, summary cap table and selected commercial proof. Detailed customer, employee or security information can be shared later with tighter permissions and appropriate redaction. Record who receives access, and remove it when the process ends.

Do not upload passwords, secret keys, full payment credentials or personal data that is not needed for the review. A data room should help diligence, not create a new security risk.

• 1. Company and governance
• 2. Capitalisation and fundraising
• 3. Finance and tax
• 4. Market, customers and metrics
• 5. Commercial contracts
• 6. Intellectual property and technology
• 7. Team and employment
• 8. Regulatory, data and disputes
• 9. Fundraising model and use of funds
• 10. Diligence Q&A and gap tracker

How can founders make every fundraising claim traceable?

Create a claim-to-evidence matrix before sharing the data room. It turns vague readiness into a testable process.

The status should be ready, ready with explanation, remediation in progress or not supportable. Remove or rewrite a claim that is not supportable. Do not search for a document merely to defend wording that is inaccurate.

What changes when the investor is based outside India?

Foreign investment can add checks on investor eligibility, sector rules, investment limits, pricing, instrument type, payment route and reporting. The Reserve Bank of India’s Master Direction on Foreign Investment in India was updated through 15 June 2026 and states that foreign investment is subject to entry routes, sectoral caps or limits and related conditions. It also points to reporting such as FC-GPR or FC-TRS where applicable. (RBI Master Direction on Foreign Investment in India)

Do not assume that a structure used for a domestic angel can be copied for a non-resident investor. Before signing, have the proposed instrument, valuation basis, investor residency, sector, payment route, reporting steps and closing timeline checked by professionals familiar with company law, FEMA, tax and the company’s sector.

Keep earlier foreign investment records together, including valuation support, bank advice, allotment approvals and regulatory reporting acknowledgements. A missing historical filing can become an issue in the next round.

Which due diligence red flags should founders fix first?

Fix gaps by deal impact, not by how easy the document is to format.

High-priority ownership and authority gaps

• Unclear founder or shareholder ownership
• Missing issue, transfer or conversion record
• Undisclosed side letter or investor right
• Core intellectual property outside the company
• Person signing contracts without clear authority

High-priority financial and commercial gaps

• Revenue, cash or burn that does not reconcile
• Tax or statutory dues with no plan
• Major customer concentration not disclosed
• Pipeline presented as contracted business
• Loan, guarantee or liability missing from the accounts

High-priority operating gaps

Use a remediation tracker with issue, risk, action, owner, adviser, deadline and evidence of closure. Some gaps can be corrected. Others must be disclosed and priced into the investor’s decision. Concealment is not remediation.

• Required licence or consent not held
• Material dispute or security incident withheld
• Key customer contract can terminate on the financing event
• Key employee or developer working without signed terms

Can a startup prepare for due diligence in four weeks?

Many early-stage startups can become materially better prepared in four focused weeks, although legal correction and regulatory approvals may take longer.

Week 1: Inventory and reconcile

List every checklist item, build the cap table from primary records and reconcile the deck’s main metrics to finance and customer evidence. Mark missing, inconsistent and outdated items.

Week 2: Fix critical gaps

Prioritise ownership, approvals, unsigned contracts, IP assignments, financial reconciliations and outstanding filings. Involve the company secretary, chartered accountant and lawyer where needed.

Week 3: Build and test the data room

Create the folder structure, index every file, set permissions and write short explanation notes. Ask someone outside the workstream to locate the proof for ten major pitch claims.

Week 4: Run a mock investor review

Assign one person to question the team as an investor would. Test revenue definitions, cap-table totals, cash, customer concentration, product ownership, regulatory position, hiring plan, use of funds and known disputes. Record answers in a Q&A log.

Do not delay basic readiness until a term sheet arrives. Diligence preparation often reveals operating weaknesses that matter even if the current investment does not proceed.

How should founders manage investor questions during diligence?

Use one controlled Q&A tracker. Record the question, date received, owner, response, supporting document, approval status and date answered. This prevents two team members from giving different answers.

Answer the question asked, state the reporting period and define the metric. If the answer is unknown, say what is being checked and when the verified response will be available. Do not estimate from memory when the figure can be calculated.

When a new document changes an earlier answer, correct the answer in writing and update the room. A timely correction is better than leaving conflicting versions in circulation.

The founder should also keep an exceptions log. This is a concise list of known gaps, the business effect, remediation and timing. It helps the investor distinguish an understood issue from an undiscovered one.

Should founders conduct due diligence on the investor?

Yes. Founders should verify the investor’s identity, decision authority, source and readiness of funds, typical cheque size, stage and sector fit, portfolio conflicts, reputation, reference history, decision process and expected involvement.

Ask founders from the investor’s current portfolio how the investor behaved when targets were missed, another round was needed or a difficult board decision arose. Clarify who makes the final decision and whether the person in meetings can commit the fund.

Review the term sheet for economics, control, information rights, follow-on rights, transfer terms, founder restrictions, closing conditions and costs. Professional advice is especially important when terms affect control or future rounds.

Investor interest is not proof of funds, and a prestigious name is not a substitute for fit. Mutual diligence protects the company’s time and long-term working relationship.

How can founders score due diligence readiness?

Score each of the ten workstreams in the main checklist from 0 to 2:

Use this formula:

Readiness score = points earned ÷ 20 × 100

A score is only a management tool. It does not predict investment. More importantly, a serious ownership, fraud, regulatory or IP issue cannot be cancelled out by high scores elsewhere.

As an internal rule, do not open broad diligence access while a critical claim remains knowingly false or core ownership is unresolved. Fix it, disclose it properly or pause the process.

• 0: Missing, inconsistent or not understood
• 1: Partly ready or requires explanation or correction
• 2: Reconciled, current, indexed and owned by a responsible person

Conclusion: Readiness is stronger than a polished folder

A good startup due diligence checklist does more than collect PDFs. It proves that the company knows what it owns, how it earns, what it owes, which claims are supported and which risks still need work.

For Indian founders, the strongest process is simple: reconcile primary records, make each pitch claim traceable, disclose exceptions, assign owners and obtain professional advice where company law, tax, FEMA, sector rules or investor terms apply.

Funding access can start a conversation. Business fundamentals and credible evidence help that conversation survive scrutiny.

Frequently asked questions