A S BANKA ADVISORS

Key Takeaways

• Due diligence is a state, not an event. An investor does not test you; they read the file you already have. The startup due diligence checklist Indian founders should run is the same one the investor will run, just earlier and in private.
• Diligence covers six buckets: corporate and cap table, financial, tax, legal and contracts, intellectual property, and people and founders. A gap in any one can stall a wire even when the business is strong.
• The single most-checked document is your cap table, and it gets cross-read against the public register, your filings and your signed grant letters. If those four disagree, the diligence stops being routine.
• The costly gaps are almost always old and quiet: an unsigned ESOP grant, an intercompany invoice with no agreement behind it, a domain or code owned by a founder personally, a loan from family never documented, a filing skipped in a slow year.
• A lead investor’s diligence typically runs four to twelve weeks with outside lawyers and accountants reading each document line by line. The cheapest time to build the file is the twelve to twenty-four months before anyone asks for it.

Most founders meet due diligence for the first time the week a term sheet arrives, and treat it as an exam to cram for. It is not an exam. When you understand what a startup due diligence checklist in India actually is, you see that the investor is not testing you at all: they are reading a file that already exists, or does not. The cap table gets read against the public register. The filings get read against the calendar. The grant letters get read against the promises you made in hiring calls. The intercompany invoices get read against the story in your deck. This article is the same checklist an investor will run, laid out so you can run it on yourself first, while you still have the time and the calm to fix what it finds.

Diligence is a state your file is in, not a test you sit

Here is the reframe that changes how founders prepare. Due diligence is not a moment; it is a reading. A lead investor, once they are interested, hires lawyers and accountants to go through your documents one at a time and check that each one agrees with the others and with the public record. Nothing about that process is designed to trip you up. It is designed to confirm that what you said is true and that owning a piece of your company will not come with a buried problem. If your documents exist, are signed, and agree with each other, diligence is a quiet few weeks. If they do not, it becomes a cleanup project running in parallel with a deal that is waiting, and deals that wait lose momentum.

So the goal is not to “pass” diligence. The goal is to already be in the state that diligence is looking for, long before an investor opens the folder. Below is what they open.

The startup due diligence checklist Indian founders should run first

Six buckets. Run them in this order, because the earlier ones are the ones that stop a deal cold.

1. Corporate and cap table

This is where diligence starts and where most surprises live. Expect the investor to pull your company’s public filings and reconcile them against what you told them. Have ready: your incorporation documents and current constitution, your board and shareholder resolutions, your statutory registers, your director KYC (the annual DIR-3 KYC), and your annual filings (AOC-4 for the financial statements and MGT-7 for the annual return). The centre of this bucket is your cap table: a single, current, accurate record of who owns what on a fully diluted basis, including every option granted. Investors treat the cap table as ground truth, and they check it against the public register. Our note on why your cap table looks clean but isn’t covers the gaps that hide here.

2. Financial

Have your last three years of financial statements, your management accounts, your revenue recognition explained the same way in your deck and your books, and a clear view of your bank balances, debt and any loans, including loans from founders or family. If you have taken money from anyone connected to you, that it is documented as a proper loan or investment matters more than the amount. Investors will also rebuild your key metrics from first principles, so make sure the numbers in your pitch (revenue, gross margin, burn, runway) reconcile to the numbers in your accounts.

3. Tax

Tax diligence is a paper-trail check, not a judgement of your rates. Have your income-tax return filing history for the company and the directors, your GST registration and return-filing record, your TDS deduction-and-deposit record, your advance-tax payments, and any open notices or assessments. If you claimed the startup tax holiday under your DPIIT recognition, keep the recognition and the basis for it on file. If you have a foreign parent, subsidiary or any cross-border related-party dealing, expect your transfer-pricing position and the accountant’s report on it (Form 3CEB) to be read closely. None of this is about paying more tax; it is about being able to show, on demand, that what was due was filed and paid.

4. Legal and contracts

Have your material customer and supplier contracts, your employment and consultant agreements, any licences you rely on, and any litigation or disputes, however small. The two quiet killers here are contracts that assign value away without you noticing (a supplier agreement that quietly claims your IP, a customer contract with an unusual exit clause) and related-party arrangements between your own entities that were never put on paper. If money or IP moves between two companies you control, there should be an agreement that says why and on what terms. Also on file: your loan agreements, and any deposits or loans reported through DPT-3.

5. Intellectual property

This bucket sinks more early-stage deals than founders expect, because it is easy to get wrong at the start and expensive to fix later. The core question is simple: does the company own what it is built on? Your code, your trademarks, your product designs and, critically, your domain name should be owned by or formally assigned to the company, not sitting in a founder’s personal account or an ex-contractor’s name. Every engineer and every agency that wrote code for you should have assigned that work to the company in writing. A product the company does not legally own is a hole an investor will make you close before they wire anything.

6. People and founders

Investors assess the team as carefully as the numbers. Expect them to look at the founders’ backgrounds and any other directorships, the equity split and vesting between co-founders, and the key-person risk if one person holds everything together. On the employee side, this is where your ESOP file gets read: an approved scheme, board grants, a valuation and a signed grant letter behind every option you have promised. If you have handed out equity on a handshake, this is where it shows up as a gap. Our walk-through of how to set up an ESOP that survives due diligence is the bucket in full.

Run the checklist in this order

1. Reconcile your cap table against the public register and your grant letters. This is the highest-value hour you can spend. If your fully diluted cap table does not match what is filed and every option does not have a signed letter behind it, fix that first.
2. Check your filings are current. AOC-4, MGT-7, DIR-3 KYC, DPT-3 where relevant. A filing skipped in a slow year is a small thing that reads as a governance flag.
3. Confirm the company owns its IP. Domain, code, trademarks, all assigned to the company in writing. Chase any assignment that is missing now, while the person is still reachable.
4. Put every related-party arrangement on paper. Any money or IP moving between entities you control, or any loan from you or your family, needs a written agreement and a tax trail.
5. Assemble the tax and financial file. Three years of accounts, returns, GST and TDS records, and metrics that reconcile to your deck.
6. Build the data room and keep it current. One organised place for all of the above, updated as things change, so that when an investor asks, you share a link instead of starting a scramble.

What actually breaks a diligence

It is almost never the business. It is the old, quiet gaps: an ESOP promised in a hiring call and never papered, an intercompany invoice with no agreement behind it, a domain registered in a founder’s personal Gmail, a loan from a parent that was never documented, an annual filing missed in a year nothing much happened. Each is cheap to fix on an ordinary Tuesday and expensive to fix with a term sheet on the table and a lawyer billing by the hour. This is the same principle as pricing a round correctly before you negotiate it; our piece on pre-money vs post-money valuation is the fundraising-math companion to this readiness checklist. Diligence rewards the founder who did the boring work early, and it is unforgiving to the one who deferred it.

Frequently asked questions

What is a startup due diligence checklist in India?

It is the set of documents an investor’s lawyers and accountants review before funding you, grouped into six buckets: corporate and cap table, financial, tax, legal and contracts, intellectual property, and people and founders. Running it on yourself first, before a raise, is the cheapest way to find and fix gaps while you still have time.

What do investors actually check first in due diligence?

The cap table, cross-read against the public register and your signed grant letters. It defines who owns what, so investors treat it as ground truth. If your fully diluted cap table does not match your filings and your grants, the diligence stops being routine.

How long does startup due diligence take in India?

For a priced round, the lead investor’s diligence typically runs four to twelve weeks, with outside professionals reading each document line by line. The variable that decides whether it is four weeks or twelve is how ready your file was before it started.

What are the most common due diligence red flags for Indian startups?

Undocumented ESOP grants, IP (code, domain, trademarks) owned by a founder personally instead of the company, related-party transactions and loans with no written agreement, missing or late statutory filings, and metrics in the deck that do not reconcile to the accounts.

When should a founder start preparing for due diligence?

Twelve to twenty-four months before a target raise, not the week a term sheet arrives. The work is mostly documentation, and documentation is far cheaper to build as you go than to reconstruct retroactively while a deal waits.

The one thing to do this week

Open your cap table and check it against two things: what is filed on the public register, and a signed grant letter for every option you believe you have handed out. If those three do not agree, you have found the gap an investor would find, and you have found it with months to fix it instead of days. That single reconciliation is the highest-value hour in this entire checklist.

Not sure whether your file would survive a lead investor reading it line by line? That is exactly the kind of thing worth a proper look before you raise, not during. You can book a slot through the link in the comments.

Disclaimer: This article is general information for founders and does not constitute legal, tax or financial advice. Due diligence scope and requirements depend on your company’s specific facts and the investor. Confirm your own position with your advisers before you act.