Series A Legal Due Diligence Checklist: What Investors Will Ask For

What legal due diligence do investors do before a Series A?

Series A legal due diligence is the investors’ review of a startup’s legal records before they invest. Expect requests covering corporate formation and governance, the cap table and equity grants, IP ownership, material contracts, employees and contractors, privacy and security, regulatory matters, litigation, and finance and tax. Organized records keep the round moving.

Diligence connects directly to the financing documents. Many Series A rounds are papered on forms based on the NVCA model legal documents, including a certificate of incorporation, stock purchase agreement, investors’ rights agreement, voting agreement, and right of first refusal and co-sale agreement. In the stock purchase agreement, the company makes representations about its capitalization, IP, contracts, compliance, and litigation, and lists exceptions in a disclosure schedule. Investor counsel uses the data room to test those representations.

A practical data room mirrors the sections below. Use clear folder names, include fully signed copies rather than drafts, and keep an index. Gaps found by the company before the term sheet are usually easier to fix than gaps found by investor counsel during a live deal.

What corporate formation and governance documents belong in the data room?

Include the certificate of incorporation and every amendment, the bylaws, all board and stockholder consents and minutes, good standing certificates, and records of any foreign qualifications, so investors can confirm the company was properly formed and every key action was approved.

• Certificate of incorporation, all amendments, and any certificates of designation.
• Bylaws as currently in effect.
• Initial board consent appointing directors and officers and authorizing founder stock issuances.
• Board and stockholder consents and minutes approving financings, option grants, plan adoption, and significant transactions.
• Good standing certificate from the state of incorporation and foreign qualifications in states where the company does business.
• Prior financing documents, including SAFEs, convertible notes, side letters, and any investor rights already granted.
• Records of any conversion, merger, or reorganization, such as a change from an LLC to a corporation.

What equity and option plan records will investors review?

Investors reconcile the cap table to signed stock purchase agreements, option grants, board approvals, vesting schedules, 83(b) elections, and convertible instruments, and they look for securities law compliance on every issuance.

An 83(b) election must generally be filed with the IRS within 30 days after the stock is transferred; the IRS now offers Form 15620 for this purpose. Because the deadline is short and generally cannot be extended, investors check founder elections early. Equity, valuation, and tax questions often call for coordination between counsel and the company’s tax advisors.

• A current, fully diluted cap table that ties to the underlying documents, including the option pool and all outstanding SAFEs and notes.
• Founder stock purchase agreements with vesting, acceleration, and repurchase terms.
• Copies of 83(b) elections and proof of timely filing for restricted stock subject to vesting.
• Equity incentive plan, form agreements, every option and RSU grant, and the board approvals for each grant.
• Valuation reports supporting option exercise prices, which are commonly obtained to address Section 409A of the Internal Revenue Code.
• Securities filings and exemptions relied on, such as Form D notices, state notice filings, and Rule 701 for compensatory grants.
• Promised but undocumented equity: offer letters, advisor agreements, or emails that mention shares or options.

How do investors confirm the company owns its intellectual property?

They look for signed IP assignment agreements from every founder, employee, and contractor who contributed to the product, along with registrations, licenses, open source practices, and any prior employer or university claims.

• Founder IP assignments covering work created before incorporation, not only after.
• Employee confidential information and invention assignment agreements, with any state law notices required for employee assignments.
• Contractor and agency agreements with present-tense assignment language, since a contractor’s software generally does not qualify as work made for hire.
• Patent, trademark, and copyright filings, plus domain name ownership in the company’s name.
• Inbound licenses for technology the product depends on, and outbound licenses that grant exclusivity or source code access.
• An open source inventory and policy, especially for copyleft components.
• Any university, government, or prior employer involvement in developing the core technology.

Which material contracts should be in the data room?

Provide the contracts that drive revenue, create significant obligations, or restrict the business: major customer, vendor, partnership, and licensing agreements, plus anything with exclusivity, most-favored pricing, or change of control terms.

• Customer agreements above a materiality threshold, with order forms and statements of work.
• Key vendor and infrastructure agreements, such as cloud hosting and payment processing.
• Partnership, reseller, distribution, and joint development agreements.
• Contracts with exclusivity, non-compete, most-favored customer, or minimum purchase commitments.
• Assignment and change of control clauses that require consent if the company is acquired.
• Loans, liens, equipment and real estate leases, and any guaranties the company has given.
• Related party agreements between the company and its founders, directors, or investors.

What employment and contractor records will investors check?

Expect requests for offer letters, employment agreements, contractor agreements, invention assignments, handbook and policies, I-9 records, classification of workers, compensation and bonus arrangements, and any employment disputes or terminations.

Worker classification draws attention because the IRS, the Department of Labor, and state agencies apply their own tests, and a misclassified contractor can create tax, wage, and IP ownership issues at the same time.

• A roster of employees and contractors with titles, locations, compensation, equity, and status.
• Signed offer letters and agreements, including severance, bonus, or acceleration terms.
• Independent contractor agreements and support for classifying each person as a contractor.
• Form I-9 records and any visa sponsorships.
• Employee handbook, key policies, and benefit plan documents.
• Any complaints, demand letters, or agency charges involving current or former workers.

What privacy, security, regulatory, and litigation items are reviewed?

Investors review privacy policies, data processing agreements, security practices and incidents, licenses and permits the business requires, regulatory correspondence, and any pending or threatened claims.

• Privacy policy, terms of service, cookie practices, and records of how users consented.
• Data processing agreements with customers and vendors, and a list of subprocessors.
• Security program summary, any SOC 2 or similar reports, and a history of security incidents and notifications.
• Industry-specific licenses, registrations, or approvals, such as those that may apply in health, finance, or other regulated fields.
• Correspondence with regulators, including inquiries, audits, or notices.
• Pending, threatened, or settled litigation, demand letters, and IP infringement claims.
• Insurance policies, including directors and officers and cyber coverage.

What financial and tax records belong in legal due diligence?

Legal diligence typically covers historical financial statements, tax returns and filings, debt instruments, and tax positions tied to equity. The company’s accountants usually prepare the numbers, while counsel coordinates how they are disclosed.

• Financial statements and current budget or forecast.
• Federal and state income tax returns, payroll filings, and sales tax registrations where applicable.
• Records supporting tax credits or incentives the company has claimed.
• Debt, credit facilities, and any security interests over company assets.
• Information relevant to equity tax treatment, such as 409A valuations and records the company keeps on qualified small business stock under Section 1202.

How can a startup fix common diligence gaps before the term sheet?

Run an internal diligence review a few months before fundraising, reconcile the cap table, collect missing signatures and IP assignments, ratify unapproved actions, correct filings, and prepare a draft disclosure schedule so surprises surface on the company’s timeline.

Some problems cannot be fully cured. A missed 83(b) election, for example, generally cannot be filed late, so the response may involve tax advisors and a different structure going forward. Identifying those issues early gives the company time to explain them and to negotiate how they appear in the financing documents.

• Reconcile the cap table to signed documents and resolve any differences before sharing it.
• Obtain confirmatory IP assignments from founders, former employees, and contractors who never signed one.
• Have the board ratify option grants or issuances that were never properly approved, using the statutory ratification procedures available under the law of the state of incorporation where needed.
• File overdue Form D or state notices, annual reports, and franchise tax filings.
• Paper any equity promised informally, or document that it is no longer owed.
• Collect fully signed versions of material contracts and note any that need consent on a change of control.
• Draft the disclosure schedule against the representations in the expected stock purchase agreement.