What is the key focus in due diligence for an early stage (startup) company?
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There is insufficient financial history for an early stage company which is usually running at loss and waiting for a newly developed product being tested in the market.
perhaps on the prospects of the company’s products and/or services. However, it would be risky for the buyer, who has to invest upfront without any information of the financial status and position of the seller.
It would depend on the product being tested and the level of confidence regarding said product
Depending on how early a stage a company is at, there is typically no product, business pipeline nor track record, and in many cases the company may not even be profitable yet. Due diligence tends to focus on the technical aspects of product ideation and development plan. Other aspects that may be worth investigating at early stage include HR (particularly the founders and ESOP), intellectual property, corporate status and legal claims.
The company is likely to lack positive financial results at an early stage. IF considering an acquisition, it would be wise to look at
– its product/services, including the product roadmap
– IP clauses in employment contracts to ensure that they comply with local requirements and that the results of the employees’ work are assigned to the company.
– Any grants or loans, to be aware of any conditions to be met and/or amounts to be repaid.
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