Chapter 5 of 10

Due Diligence: The New Standard for 2025

Preparing for rigorous diligence, including the "AI Data Cliff" and sector-specific requirements.

What You'll Learn How to build your data room, handle AI data questions, and prepare for investor scrutiny.

What Investors Will Ask For

Due diligence is deeper than ever. Investors check your tech, AI data, and legal docs—not just financials.

Think Like an Investor

Your data room should answer questions before they're asked. Good structure shows maturity and speeds up the deal.

The Due Diligence Checklist

Have these ready to avoid deal delays:

Category	Key Items to Prepare	2025 Specific Nuances
Financial	Profit and loss (3-5 years), balance sheet, cash flow. Revenue by customer. Monthly statements.	Burn rate analysis. Working capital. Tax compliance across states.
Legal	IP assignments. Cap table history. Key contracts. Stock option agreements.	AI Data Sources: Where training data came from, licenses, fair use analysis.
Tech/Product	Architecture diagrams. Security audits. Code repository access.	Model Audits: Bias testing, accuracy metrics, open-source risks.
Commercial	Customer reference calls. Pipeline validity. Contract terms.	Churn by cohort. Net revenue retention checks. Competitive analysis.
HR/Team	Employee agreements. Org chart. Key person risk review.	Remote work compliance. Diversity metrics. Option pool size.

The AI Data Problem

For AI companies, data sources are the #1 deal-killer. After big lawsuits, investors want proof you can legally use your training data.

Data Inventory

A spreadsheet listing every dataset you use for training:

Dataset name and description
Source (vendor, public, proprietary, scraped)
Licensing terms
Usage restrictions

Licensing Archive

Signed agreements for commercial data:

Executed license agreements
Proof of right-to-use
Renewal terms and dates
Transferability provisions

Web Scraping Compliance

If any data was scraped from websites:

Terms of service analysis for each source
Legal opinion letters on fair use
Proof you followed robots.txt rules
How you identified your scraper to sites

Risk Protection

Protections for you and your customers:

Clauses that protect enterprise customers from IP claims
IP liability insurance (if you can get it)
Docs showing where your models came from
Content filters to block harmful outputs

Warning

Get this ready before the term sheet. Finding bad data during diligence kills deals—or cuts value 30-50%.

Financial Deep Dive

Beyond basic financials, expect questions about:

Revenue Quality

Not all revenue is equal. Break it down:

Recurring vs. one-time
Contract length distribution
Customer concentration (top 10%)
Expansion vs. new logo split

Burn Analysis

Investors will check your burn math:

Cash burn vs. accounting loss
Working capital needs
One-time vs. ongoing costs
How long your cash lasts

Cohort Checks

They will check your retention claims:

How revenue changes over time by signup month
Churn by customer group
Upsell rates by customer group
Time to recover customer costs

Technical Review

For tech-heavy raises, expect a deep technical review:

Technical Checklist

System Design

How your system is built
What tech you use
Can it handle growth?
What breaks if one part fails?

Security

Security audit reports
Hack test results
How you protect data
How you handle incidents

Code Quality

Test coverage
Deploy process docs
Tech debt review
Open-source risks

Team Strength

Who's on the team
Key person risks
Hiring plans
Technical leadership

Sector-Specific Diligence

Fintech

Reviews focus on rules and financial integrity:

Know-your-customer and anti-money laundering processes
State lending licenses (if needed)
Fraud rates and chargebacks
How you reconcile your books
Bank partner relationships

Biotech/Healthcare

Reviews focus on IP and FDA approval paths:

Patent portfolio and how long patents last
Clinical trial milestones and timelines
History of FDA interactions
Odds of technical success
Insurance reimbursement strategy

Data Room Organization

Recommended Structure

Organize your data room with clear folders:

📁 1. Corporate
   ├── Certificate of Incorporation
   ├── Bylaws
   ├── Board Minutes
   └── Cap Table

📁 2. Financial
   ├── Historical Financials (3 years)
   ├── Monthly Statements (12 months)
   ├── Budget & Projections
   └── Revenue by Customer

📁 3. Legal
   ├── Material Contracts
   ├── IP Documentation
   ├── Employment Agreements
   └── Litigation (if any)

📁 4. Product & Technology
   ├── Architecture Documentation
   ├── Security Audits
   ├── Product Roadmap
   └── [AI Only] Data Governance Package

📁 5. Commercial
   ├── Customer List
   ├── Sales Pipeline
   ├── Case Studies
   └── Churn Analysis

📁 6. Team
   ├── Org Chart
   ├── Key Bios
   ├── Option Pool Summary
   └── Hiring Plan

Key Takeaways

    Remember These Truths
    Build the data room before you need it. Scrambling during diligence looks bad.
For AI companies, data sources are critical. Have the Data Package ready before the term sheet.
Assume everything will be verified. Claims in your deck will be traced to source documents.
Sector-specific requirements matter. Fintech needs compliance docs; biotech needs IP and FDA history.
Good structure builds trust. A clean, logical data room speeds up the process.

With due diligence ready, you can negotiate. Next: Term Sheet Negotiation—terms to accept and terms to avoid.

Investor Targeting Term Sheet Negotiation

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Works Cited & Recommended Reading

Market Analysis & VC Trends (2025-2026)

1. US Capital Markets 2026 Outlook. PwC
2. Venture capital outlook for 2026: 5 key trends. Harvard Law School
3. Crunchbase Predicts: Why Top VCs Expect More Venture Dollars, Bigger Rounds And Fewer Winners In 2026. Crunchbase
4. Q3'25 Venture Pulse Report — Global trends. KPMG International
5. The AI Due Diligence Checklist: Why Your Series A Could Take 60+ Days Longer. Data Mania
6. Average US AI Series A Valuations in 2025 (PitchBook & Carta Data). Metal.so
7. Complete List of Series A Startups & Funding Announcements for 2026. Growth List
8. Top Venture Capital Firms and Investors in Florida [2026]. OpenVC
9. Miami metro hauls in $2B in VC in 1H 2025. Refresh Miami
10. Seasonal Trends in Seed and Series A Rounds. Phoenix Strategy Group
11. Interest Rates and Venture Debt: What to Know. Phoenix Strategy Group

Financial Modeling

12. SaaS Startup Financial Model Template: 5-Year Projections. Quadratic
13. SaaS financial modeling for startups (a template guide). HiBob
14. SaaS Financial Model Template: Top 5 Success Secrets 2025. Lineal CPA
15. The Stress Test: War-Game Your Business Model Before Crisis Hits. Strategeos
16. The Essential Guide to Scorecard Valuation Method for Start-Ups. Future Ventures Corp
23. SaaS Financial Model Template. FlowCog

Pitch Deck & Storytelling

17. Term Sheet 101 (2025 Edition): Clauses, Red Flags, and Negotiation Tactics. WOWS Global
18. Data-Driven Storytelling for Startups: Elevate Your Pitch Deck. Qubit Capital
19. Why the Perfect Pitch Deck Matters More Than Ever in 2025. Magistral Consulting
20. Ultimate Guide to Storytelling in Pitch Decks. M ACCELERATOR
21. How to build a winning pitch deck structure that investors want to see. Prezent AI
22. Data-Driven Storytelling: Shaping Impactful Narrative with a Framework. Periscope BPA

Investor Targeting & Outreach

24. 8 Steps to Build an Investor Map That Secures Key Intros. Qubit Capital
25. Strategic Investor Mapping: Align with the Right Investors. Qubit Capital
26. How to Smartly Leverage Your Network to Get Warm Investor Intros. Underscore VC
27. How to get warm intros to VCs. OpenVC
28. 5 Best Cold Email Templates for Reaching Investors. Evalyze.ai
29. How to Cold Email Investors in 2025 (Templates + Tips). Visible.vc
30. Crafting the Perfect Outreach Email: Investor Templates to Engage Startup Founders. Qubit Capital
31. Two Investor Emails to Know & Sample Templates. Silicon Valley Bank

Due Diligence

32. The Ultimate Financial Due Diligence Checklist (2025 Guide). PDF.ai
33. 2025 Venture Capital Due Diligence Checklist. 4Degrees
34. Due Diligence Checklist for FinTech Founders. Qubit Capital
35. Biotech Startup Valuation: Series A & B Benchmarks and Trends 2025. Qubit Capital

Term Sheet & Negotiation

36. Term Sheets for Startups: Uses & Examples. Carta
37. 13 Venture Capital Terms Founders Should Know For Negotiation. BaseTemplates
38. A Founder's Guide to Negotiating a Venture Capital Term Sheet in the UK. Jonathan Lea Network

Venture Debt

39. Venture Debt in 2025. MicroVentures
40. What Are Debt Warrants and Are They Good For Startups? Lighter Capital
41. The Anatomy of a Venture Debt Term Sheet: Key Clauses Founders Should Negotiate. Eqvista (Medium)
42. Venture Debt Term Sheet Analysis. Kruze Consulting

Organizational Scaling

43. How to Build a Scalable HR Team: 3-Stage Framework. Deliberate Directions
44. Amazon Bar Raiser Interview (questions, prep tips). IGotAnOffer
45. The Ultimate Guide on How to Hire for Hyper-Growth Companies. Recruiter.com
46. Scaling for Success: Organizing for Rapid Growth. Human Capital Innovations
47. Optimize Your Startup Team Structure for Success. Shiny
48. How to Effectively Scale a Professional Services Firm Beyond 150 People. Kantata

Governance & Decision Making

49. What is a board governance framework? Board Intelligence
50. Corporate Governance for Startups: Best Practices to Build Investor Trust. Qubit Capital
51. The Startup Board Meeting Template Mistake That Haunts CEOs. I'mBoard
52. Board Meeting Agendas: Guide & Template. Boardable
53. The 6 Decision-Making Frameworks That Help Startup Leaders Tackle Tough Calls. First Round Review
54. The 10x Exercise for Entrepreneurs. David Cummings
55. An Investor's Guide on How to Scale By 10X: Key Indicators and Strategies. M Accelerator

This playbook synthesizes research from venture capital industry reports, financial modeling best practices, and organizational scaling frameworks. Data reflects the 2025-2026 funding landscape. Some links may be affiliate links.

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