What is due diligence — and what will investors ask for?
By SuLe · Updated 1 May 2026
Due diligence is the investor's investigation of your company before they hand over the money — a structured check that the business is what your pitch says it is. Their solicitor works through a checklist covering incorporation, the cap table, intellectual property, contracts, employment and data compliance, and your job is to answer it with clean, complete paperwork.
Key facts
- Legal due diligence checks that your company's legal foundations match your pitch: ownership, IP, contracts and compliance.
- A typical seed checklist asks for incorporation documents, statutory registers, the cap table, all share and option paperwork, and SEIS/EIS advance assurance.
- It also covers IP assignments from founders, contractors and agencies, employment and consultancy agreements, and data protection basics.
- Findings feed the disclosure letter — anything disclosed there cannot later found a warranty claim.
- Slow or incomplete responses to the checklist are a leading cause of a round drifting past its target date.
What is due diligence actually for?
Due diligence is how an investor confirms the company is worth what they are paying and carries no hidden legal landmines. It sits between agreeing the term sheet and completing the investment.
For founders it is less an exam than an inventory. The investor's solicitor sends a checklist; you gather documents into a data room and answer questions. Most of what they want, a well-run company already has.
The process matters because it shapes the deal. A clean data room speeds completion and strengthens your hand; gaps invite specific warranties, indemnities or a price adjustment, and in the worst case they stall the round while you scramble to fix them.
What will investors ask for at seed?
A typical seed diligence list is broad but predictable. It starts with the company itself: incorporation documents, the statutory registers, and the full cap table with every share and option document behind it.
It then works outward into value and risk. Expect requests for SEIS/EIS advance assurance, material contracts, IP assignments from founders, contractors and agencies, and employment or consultancy agreements. Data protection basics — ICO registration and a privacy policy — and confirmations that there is no live litigation round out the list.
The theme is ownership and evidence. Investors want proof that the company owns its IP, that its shares are cleanly held, and that it is meeting its baseline legal obligations.
| Area | What investors typically ask for |
|---|---|
| Corporate | Incorporation documents, statutory registers, articles |
| Ownership | Cap table, share and option paperwork, deeds of adherence |
| Tax | SEIS/EIS advance assurance |
| IP | Assignments from founders, contractors and agencies |
| Commercial | Material customer and supplier contracts |
| People | Employment and consultancy agreements |
| Compliance | ICO registration, privacy policy, litigation confirmations |
| Finance | Accounts and management figures |
How does due diligence connect to warranties?
Due diligence and warranties are two ends of the same rope. Due diligence is the investor looking; warranties are your written promises about what they find.
The disclosure letter is the knot between them. Anything diligence uncovers — a contractor who never signed an IP assignment, say — you disclose there, and a fact fairly disclosed cannot later found a warranty claim.
So the process is not adversarial. Full disclosure protects you: it moves a known issue out of "breach of warranty" territory and into "the investor bought with their eyes open". Hiding a problem you know about does the opposite.
Worked example
Nadia founds Loop Health Ltd, a physiotherapy booking app, and lands a £450,000 seed lead. The investor's solicitor sends a 40-item checklist. Nadia's cap table and SEIS advance assurance are ready, but two early freelance developers never signed IP assignments.
Rather than hope no one notices, she gets both to sign assignments before completion and discloses the history in the disclosure letter. The fix costs a few days and a modest legal fee. The alternative — an undisclosed gap in ownership of her core product — would have been a genuine warranty exposure, and exactly the kind of thing that resurfaces at Series A due diligence.
Where founders go wrong
Starting the data room after the term sheet
— the checklist is predictable, so building it early turns a scramble into a copy-and-paste exercise.Answering slowly
— drip-feeding documents is the classic cause of a round drifting; investors read delay as disorganisation.Hiding a known problem
— disclosing a gap protects you against a warranty claim; concealing it converts a fixable issue into a liability.Ignoring IP assignments
— missing founder, contractor or agency assignments are the single most common seed diligence find, and they undermine what investors are actually buying.
Related questions
How long does due diligence take at seed?
It varies with how tidy your paperwork is. Legal due diligence on a straightforward seed round is often a matter of a few weeks running in parallel with document negotiation, but slow or incomplete responses to the checklist are one of the most common reasons a round drifts past its target date. [More: How long does a seed round take to close?]
What is the difference between due diligence and warranties?
Due diligence is the investor actively checking your company before they invest. Warranties are the promises you make about it in the investment agreement. The two connect through the disclosure letter, where anything due diligence turns up gets disclosed so it cannot later found a warranty claim. [More: What are warranties in an investment agreement?]
What happens if due diligence finds a problem?
It rarely kills a seed deal outright. More often the issue is fixed before completion, disclosed in the disclosure letter, covered by a specific warranty or indemnity, or reflected in the price. Missing IP assignments and messy cap tables are the usual finds, and both are fixable.
Who runs due diligence — the investor or their lawyer?
Both. The investor assesses the commercial and team side; their solicitor runs the legal review against a checklist covering incorporation, share capital, IP, contracts, employment and compliance. On smaller angel rounds the process is lighter, but a lead investor will still expect to see the core documents.
Due diligence rewards preparation and punishes surprise: the founders who sail through are the ones whose IP, cap table and compliance were tidy months before the term sheet. A SuLe solicitor can run a pre-diligence health check and fix the gaps investors always find. Book a free investment readiness check
Keep reading: What documents do I need to close a seed round in the UK? · What is a data room and what should be in it? · What are warranties in an investment agreement? · What is a disclosure letter? · How long does a seed round take to close? · What is an IP assignment agreement and when do I need one?
Primary sources: Companies Act 2006 · GOV.UK — Running a limited company
