Venture Capital Due Diligence Playbook

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Venture Capital

What Tasks does the

Venture Capital Due Diligence Playbook

Include

Corporate Structure

Organizational chart incl. all relevant shareholdings, branches and places of business
Foundation documents of all relevant companies
Description of the activities of each Group Company and of each Business within the Group
Documentation of the chain of transfer of the shares / partnership interests to their current holders, incl. sale and purchase agreements as well as certificate of incorporation
List of all current shareholders including size of respective shareholding + capitalization table
Up-to-date excerpts from the commercial register with regard to all entities
Up-to-date partnership agreements and by-laws
Minutes of shareholders’ meetings / partners’ meetings and shareholder resolutions / partners’ resolutions of last 3 years, if any
Minutes of the meetings of any advisory board (or their committees) and of the shareholders’ committee of last 3 years, if any
Copies of all agreements regarding the shares / partnership interests (including but not limited to pledges, security interests, options, nominee ships, trust agreements, usufruct, sub-participations)
All contracts, agreements and covenants between the entities being acquired and related entities (including but not limited to inter-company agreements, control agreements, agreements for the transfer of profits, business management agreements and integration agreements)
List of all managing directors and members of advisory boards (or of their committees)
Company development since foundation incl. key milestones and historical development

Agreements of Material Importance

Overview of all marketing, service and distribution agreements by region (including key details)
Overview of agreements with major customers (general terms of business, framework agreements, etc.), if any (including key details)
Overview of all material suppliers and customers by product line and region (including key details and any discounts if applicable)
All joint venture and co-operation agreements/ descriptions, if any with other enterprises
Overview of confidentiality agreements, non-competition agreements and related contracts
List of loan agreements, guarantee agreements, contracts of surety ship and other agreements regarding liabilities of third parties (including key details)
Shareholders loans
Security agreements, pledges, mortgages and other agreements establishing the rights of third parties to assets of the entities
List of all leases, financial leases, distribution agreements and any other contracts involving continuous obligations (including a summary of their contents)
List of main contracts with suppliers including key terms
Main contracts with distributors, licensees, agents or other persons involved in distribution
Secrecy agreements
All major existing consultancy agreements
List of all main insurance contracts including descriptions of risks covered and any pending damaging events
Standard forms used by the entities (including but not limited to general term and conditions, bills, order forms or warranties)
List of all other material agreements, especially with change-of-control clauses or which can be terminated only with several months’ notice or which provide for severance payments
All agreements with shareholders / partners and related persons, especially employment contracts, advisory agreements, lease agreements and loan agreements
All material contracts outside of the ordinary course of business (to the extent that they are not included above)

Real Estate

Description of the real estate owned by entities/ lease status (including key details)
Lease agreements regarding all real estate rented or let by the entities
Recent certified excerpts from the Land Register
Certified copies of the official ground plan for all the real estate
Information on any environmental matters

Intellectual Property and IT

Description of relevant (business critical) Intellectual Property Rights
Overview, descriptions and specifications of own and developed products as well as leased/rented
Patents and applications therefore
Trademarks and applications therefore
Copyrights (to the extent they are ascertainable or registered)
Utility models and registered designs (including applications therefore)
List of all licenses granted or taken
Description of IT infrastructure (incl. billing, customer tracking, etc.)
IT Hardware and software license description (incl. standard, technical and accounting software)
Description of R&D capabilities and product / technology road-map for coming years
Copies of research and development agreements to which the Group is a party
Details of whether and how any licenses, agreements or arrangements may be affected by the acquisition (breach, termination, etc.)
Details of existing or threatened litigation or other dispute resolution proceedings with regard to the infringement or validity of owned or third party IP or IT systems within the last 3 years or any circumstances which might give rise to such litigation or proceedings
Quality management certifications (Certificates, quality handbooks, audit reports)
Details of any Groups or business policies on data protection and the recording, monitoring and use of the telephone system, e-mail system and internet access

Labor Issues

Current average number of employees and historic development, by business unit, age profile, pay, lengths of service profile, technical skills (as FTEs and by headcount)
List of all additional compensation granted or promised in return for success or performance
Overview of all employers pension commitments and individual pension agreements and the group of affected employees
Standard form employment contract, including supplementary agreements (on secrecy, employee inventions, prohibition on competition etc.)
Copies of all shop agreements, collective bargaining agreements and other agreements between the entities and trade unions or employees’ councils
Information on any severance agreements with employees and former employees which have not been fully completed
Description of pending or planned offer of employment
Listing of loans granted to employees
List of visa applicants and status of their request
Copy of any report and investigations on health and safety problems and professional illness
Description of overall management structure and CVs of management and other key staff members

Compliance Issues

List of all licenses and public permits on the basis of which the entities carry out their business in its present form
List and copies of all rulings with official orders and directions (including but not limited to orders with regard to environmental protection)
List of all public grants and subsidies and descriptions of conditions of such grants and the repayment obligations

Operational & Technical Data

Standard operating procedures & manuals and analysis methodologies
Details of channel and alliance partners and sales composition arising there from. Provide copies of all such channel and sales partner arrangements
Sales by region and distribution channels, including development over time (historical & outlook). Status of sales pipeline by region, etc.
Product documentation & application as well as product pipeline

Litigation

List of all pending or threatened judicial and out of court disputes (including proceedings which have ended within the last 3 years)
Assessment of the risk of losses through respective disputes in the amount and probability

Financial information, Taxes

Audited annual accounts of the parent company (non-consolidated and consolidated accounts) and all major affiliates for last 3 years
List of current account balances for last 3 years
Elimination of all extraordinary items (e.g. restructuring costs, legal disputes, extraordinary amortization of intangible assets or goodwill)
List of all public support programs
Monthly internal reporting for the last 3 years (management accounts)
Current year trading (monthly)
Projections of planning for next 5-7 years
Business plan, incl. detailed comment on all underlying assumptions
Description of capital expenditure items including break down per year for last three years as well as for the business plan period
Copies of all current internal financial projections, forecasts, budgets and cash flow analyses of the company and each other entity
Copies of accounting manuals, authorization manual and internal control procedure manuals
Analysis of revenue & EBITDA mix by product lines, distribution channels & regions
Analysis of revenue & EBITDA mix by customer
Basis for cost allocations and review of cost tracking systems to measure actual versus budgets. Briefly comment on the internal control systems adopted
Description and explanation of any extraordinary or significant non-recurring revenues and expenses during the last three years
Summary of accounts receivable as on date, with information on recoverability of amounts, customer contracts and project related references, credit terms associated, adjustments required if any, unbilled receivables, billing cycle. Provide Accounts Receivables ageing schedule with an analysis of bad debt reserve
Information on billed & unbilled receivables with specific focus on uncollectible
Monthly business metrics for the last 8 quarters including composition of revenues by revenue from distribution channels, regions, product lines, etc.
Description of all assets not required for operations
If not included in the above, please provide: a) break-out of direct and indirect costs and b) detail of non-recurring events
Copies of all tax declarations and tax assessment notices of the entities within the last 5 years (including but not limited to corporate income tax, trade tax, VAT, social security tax and property tax)
Report on last tax audit and note on current or announced future tax audits
List of all unpaid tax debts
Complete description of all disputed with tax authorities

FAQ

What Is Due Diligence?

Due diligence is a critical aspect of any deal that begins very early in the process and can continue right up until closing. During due diligence, the potential buyer asks questions and requests documentation from the seller that helps the buyer understand the target company and its business. These requests are usually general to start and become more specific as the buyer develops a greater understanding of the target. Buyers use the information provided by the seller to evaluate the opportunities and risks associated with the potential transaction. It is important for sellers to stay organized throughout the process. Buyers often submit thorough, detailed request lists that require input from numerous members of the seller’s deal team.

What is a due diligence checklist?

As the name implies, a due diligence request list is a list of questions and requests for information and documentation that a buyer submits to a seller in order to learn about the target company, its business and its operations. The initial diligence request list tends to be broad and typically includes an extensive list of questions covering a wide range of subjects. This allows the buyer to gain a broad understanding of the target company and identify key issues that can be investigated and considered more closely. Because every deal is different, due diligence request lists have to be tailored to meet the needs of the buyer and address the unique circumstances of your transaction.
However, there is a variety of fundamental requests that are relevant in most deals. These are the types of requests that our templates are designed to address.

What Questions Does the Master Due Diligence Questionnaire Include?

Key considerations when using our m&a due diligence template

Our templates are drafted to provide an inclusive and wide-ranging list of initial due diligence requests. However, the templates, as well as the information contained therein, are not legal advice. They are not complete, and they are not specific to your transaction. The templates are designed to elicit general information from the seller that will provide the buyer with a broad overview of the target and it’s business and operations. You should review any template before using it, and it may need to be modified to ensure that it is suitable and relevant to your circumstances. Information provided by the seller will likely trigger additional questions that focus on specific aspects of the target’s business and issues identified during the due diligence process.

Are the requests in the template comprehensive?

No. Our Due Diligence Checklist is drafted to include typical requests that are relevant in most transactions. However, every deal and every target company is unique. Before utilizing any template, it is important that you review it with the help of your legal and other professional advisors to ensure that the requests are complete and tailored to the specific circumstances of your deal.

How to use the template with Dealroom

Start 14-day Free Trial of DealRoom and sign-up
Select a Master Due Diligence Template while creating a new room
Start assigning, adding to, and completing due diligence requests with needed documents by uploading them into the built-in virtual data room. The Requests tab is automatically populated with the requests from the due diligence template.

Can I change requests in this checklist or add new?

Every M&A process is different. Downloaders are urged to make these checklists their own by changing the providing information to better fit their needs.

Does this questionnaire provide all the necessary integration information?

This checklist was created by and for M&A professionals. It includes a comprehensive starting point for the integration process. However, every deal is different and may require additional requirements and tasks.

How to use this template with DealRoom?

Start 14-day Free Trial of DealRoom and sign-up
Select an Integration Template while creating a new workspace
Start planning, assigning, adding to, and completing integration tasks. The Requests tab is automatically populated with the tasks from the integration template.

Key considerations when using our m&a due diligence template

Are the requests in the template comprehensive?

How to use the template with Dealroom

Start 14-day Free Trial of DealRoom and sign-up
Select a Master Due Diligence Template while creating a new room
Start assigning, adding to, and completing due diligence requests with needed documents by uploading them into the built-in virtual data room. The Requests tab is automatically populated with the requests from the due diligence template.

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Venture Capital Due Diligence Playbook

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Requests

Documents

Groups

Analytics

Overview

Progress

Timeline

Filter

All Requests

Export

Organizational chart incl. all relevant shareholdings, branches and places of business
Foundation documents of all relevant companies
Description of the activities of each Group Company and of each Business within the Group
Documentation of the chain of transfer of the shares / partnership interests to their current holders, incl. sale and purchase agreements as well as certificate of incorporation
List of all current shareholders including size of respective shareholding + capitalization table
Up-to-date excerpts from the commercial register with regard to all entities
Up-to-date partnership agreements and by-laws
Minutes of shareholders’ meetings / partners’ meetings and shareholder resolutions / partners’ resolutions of last 3 years, if any
Minutes of the meetings of any advisory board (or their committees) and of the shareholders’ committee of last 3 years, if any
Copies of all agreements regarding the shares / partnership interests (including but not limited to pledges, security interests, options, nominee ships, trust agreements, usufruct, sub-participations)
All contracts, agreements and covenants between the entities being acquired and related entities (including but not limited to inter-company agreements, control agreements, agreements for the transfer of profits, business management agreements and integration agreements)
List of all managing directors and members of advisory boards (or of their committees)
Company development since foundation incl. key milestones and historical development

Overview of all marketing, service and distribution agreements by region (including key details)
Overview of agreements with major customers (general terms of business, framework agreements, etc.), if any (including key details)
Overview of all material suppliers and customers by product line and region (including key details and any discounts if applicable)
All joint venture and co-operation agreements/ descriptions, if any with other enterprises
Overview of confidentiality agreements, non-competition agreements and related contracts
List of loan agreements, guarantee agreements, contracts of surety ship and other agreements regarding liabilities of third parties (including key details)
Shareholders loans
Security agreements, pledges, mortgages and other agreements establishing the rights of third parties to assets of the entities
List of all leases, financial leases, distribution agreements and any other contracts involving continuous obligations (including a summary of their contents)
List of main contracts with suppliers including key terms
Main contracts with distributors, licensees, agents or other persons involved in distribution
Secrecy agreements
All major existing consultancy agreements
List of all main insurance contracts including descriptions of risks covered and any pending damaging events
Standard forms used by the entities (including but not limited to general term and conditions, bills, order forms or warranties)
List of all other material agreements, especially with change-of-control clauses or which can be terminated only with several months’ notice or which provide for severance payments
All agreements with shareholders / partners and related persons, especially employment contracts, advisory agreements, lease agreements and loan agreements
All material contracts outside of the ordinary course of business (to the extent that they are not included above)

Description of the real estate owned by entities/ lease status (including key details)
Lease agreements regarding all real estate rented or let by the entities
Recent certified excerpts from the Land Register
Certified copies of the official ground plan for all the real estate
Information on any environmental matters

Description of relevant (business critical) Intellectual Property Rights
Overview, descriptions and specifications of own and developed products as well as leased/rented
Patents and applications therefore
Trademarks and applications therefore
Copyrights (to the extent they are ascertainable or registered)
Utility models and registered designs (including applications therefore)
List of all licenses granted or taken
Description of IT infrastructure (incl. billing, customer tracking, etc.)
IT Hardware and software license description (incl. standard, technical and accounting software)
Description of R&D capabilities and product / technology road-map for coming years
Copies of research and development agreements to which the Group is a party
Details of whether and how any licenses, agreements or arrangements may be affected by the acquisition (breach, termination, etc.)
Details of existing or threatened litigation or other dispute resolution proceedings with regard to the infringement or validity of owned or third party IP or IT systems within the last 3 years or any circumstances which might give rise to such litigation or proceedings
Quality management certifications (Certificates, quality handbooks, audit reports)
Details of any Groups or business policies on data protection and the recording, monitoring and use of the telephone system, e-mail system and internet access

Current average number of employees and historic development, by business unit, age profile, pay, lengths of service profile, technical skills (as FTEs and by headcount)
List of all additional compensation granted or promised in return for success or performance
Overview of all employers pension commitments and individual pension agreements and the group of affected employees
Standard form employment contract, including supplementary agreements (on secrecy, employee inventions, prohibition on competition etc.)
Copies of all shop agreements, collective bargaining agreements and other agreements between the entities and trade unions or employees’ councils
Information on any severance agreements with employees and former employees which have not been fully completed
Description of pending or planned offer of employment
Listing of loans granted to employees
List of visa applicants and status of their request
Copy of any report and investigations on health and safety problems and professional illness
Description of overall management structure and CVs of management and other key staff members

List of all licenses and public permits on the basis of which the entities carry out their business in its present form
List and copies of all rulings with official orders and directions (including but not limited to orders with regard to environmental protection)
List of all public grants and subsidies and descriptions of conditions of such grants and the repayment obligations

Standard operating procedures & manuals and analysis methodologies
Details of channel and alliance partners and sales composition arising there from. Provide copies of all such channel and sales partner arrangements
Sales by region and distribution channels, including development over time (historical & outlook). Status of sales pipeline by region, etc.
Product documentation & application as well as product pipeline

List of all pending or threatened judicial and out of court disputes (including proceedings which have ended within the last 3 years)
Assessment of the risk of losses through respective disputes in the amount and probability

Audited annual accounts of the parent company (non-consolidated and consolidated accounts) and all major affiliates for last 3 years
List of current account balances for last 3 years
Elimination of all extraordinary items (e.g. restructuring costs, legal disputes, extraordinary amortization of intangible assets or goodwill)
List of all public support programs
Monthly internal reporting for the last 3 years (management accounts)
Current year trading (monthly)
Projections of planning for next 5-7 years
Business plan, incl. detailed comment on all underlying assumptions
Description of capital expenditure items including break down per year for last three years as well as for the business plan period
Copies of all current internal financial projections, forecasts, budgets and cash flow analyses of the company and each other entity
Copies of accounting manuals, authorization manual and internal control procedure manuals
Analysis of revenue & EBITDA mix by product lines, distribution channels & regions
Analysis of revenue & EBITDA mix by customer
Basis for cost allocations and review of cost tracking systems to measure actual versus budgets. Briefly comment on the internal control systems adopted
Description and explanation of any extraordinary or significant non-recurring revenues and expenses during the last three years
Summary of accounts receivable as on date, with information on recoverability of amounts, customer contracts and project related references, credit terms associated, adjustments required if any, unbilled receivables, billing cycle. Provide Accounts Receivables ageing schedule with an analysis of bad debt reserve
Information on billed & unbilled receivables with specific focus on uncollectible
Monthly business metrics for the last 8 quarters including composition of revenues by revenue from distribution channels, regions, product lines, etc.
Description of all assets not required for operations
If not included in the above, please provide: a) break-out of direct and indirect costs and b) detail of non-recurring events
Copies of all tax declarations and tax assessment notices of the entities within the last 5 years (including but not limited to corporate income tax, trade tax, VAT, social security tax and property tax)
Report on last tax audit and note on current or announced future tax audits
List of all unpaid tax debts
Complete description of all disputed with tax authorities

Prepare for your VC due diligence

DealRoom’s venture capital due diligence template is designed to help companies have an efficient due diligence process from the beginning. By providing your team with a pre-made professional diligence checklist, you can get a jump start on fulfilling diligence information.

The template can act as a guide for common venture capital diligence requests categories such as company/business model, legal/IP, HR, finance, market/competition and more. And when you use a diligence tracker inside DealRoom, everything will be in one centralized space.