Kruze Consulting clients have raised over half a billion dollars in venture capital and seed funding in the past 12 months, and on average one of our startup clients is acquired a month. We know how quickly investments and acquisitions can come together, and recommend that startups are ready for due diligence ahead of time.
Once your startups accounting and HR systems are in place, it makes sense to be aware of what materials you’ll need to complete a venture capital fund raising process.
Every venture capitalist has their own due diligence process, but they typically share a due diligence checklist with the startup so that the management team can collect the requested information. We’ve compared finance, tax and HR due diligence checklists that our clients have received from top tier venture investors, and created a detailed checklist.
This due diligence checklist is quite detailed. It’s unlikely that you’ll receive a due diligence checklist that is as detailed as the one we’ve created. But, if you have these materials ready prior to starting a fund raise process - or at least know where to get them - you’ll be in better shape to sail through this part of the diligence process. Plus, you’ll look more organized as a management team if you are quick to produce these materials.
We strongly recommend working with an accountant who has experience with startups and the venture fund raising process. Only about 1% of “startups” go on to raise a Series A. You don’t want your startup to fail to raise venture capital because of some outsourced bookkeeper didn’t “get” how startup accounting works. There are a handful of CPAs, like Kruze Consulting, who specialize in helping funded startups - choose someone who knows what they are doing and who can be your partner in the venture process, not someone who will slow you down and make your team look unsophisticated!
One caveat to this due diligence checklist: VC’s will also conduct legal, sales and marketing, technology, market and other categories of due diligence - and they will want your capitalization table and other stock details - which we do not cover in this list.
Download the list here, or use the chart below.
|Income Statement||Last 3 years by month and by year||High|
|Balance Sheet||Last 3 years by month and by year||High|
|Cash Flow Statement||Last 3 years by month and by year||High|
|Financial Projections (Income Statement, Cash Balance)||Next 3 years by month and by year||Explain the key KPIs and how they change as the company matures||High|
|Bookings History / Projections||Last 3 years next 3 years by month and by year||For companies with sales teams||High|
|AR Aging and Projections||Current period||Include and AR greater than 90 days past due||Low|
|Deferred Revenue Details and Projections||Highlight the product or service associated with major deferred revenue positions||Low|
|Schedule of bad debt and write offs||Recent period, near-term projections||If anyInclude any material projections||Low|
|Inventory||Current period||Value by SKU Include aging and any amounts deemed obsolete||Low|
|Accounts Payable||Current period||List of any employees or service providers that are unpaid, have not been paid in full to date, or are subject to any payment deferral arrangements||Low|
|Name of Current Accounting System||Current||And the date started using the system||Low|
|Name of Current Payroll System||Current||And the date started using the system, and payroll schedule (weekly, bi-monthly, monthly)||Low|
|Contracts and Invoices for top 10 clients||Current Period||Not relevant if not an enterprise sales model||High|
|Contracts and Invoices for any churned clients||Last 6 months||Only material clients||High|
|Leases||Current Period||Any agreements concerning the purchase, lease or sublease of real property, any personal property leases.||Medium|
|Material Contracts||Current||Any agreements, understandings, instruments, contracts or proposed transactions to which the Company is a party or by which it is bound which involve obligations of, or payments to, the Company in excess of $20,000||High|
|Cost to Acquire Customer||Current and Previous Year||Highlight expenses included and excluded||High|
|Customer LTV||Current and Previous Year||Explain the assumptions behind the calculation||High|
|Customer Churn Rate||Current and Previous Year||Explain any changes in churn rate||High|
|Federal Tax Returns||Last 3 years||High|
|Local / State Tax Filings||Last 3 years||High|
|Correspondence with tax authorities||Since inception||Federal, state and local - any correspondence between the Company and the IRS or any state or local tax bureau or any federal, state or local governmental authority||High|
|409A valuations||Last 2||Copies of Internal Revenue Code Section 409A valuation reports.||High|
|R&D Tax Credit Reports||Current Period||Medium|
|Organization Chart||Current||Who reports to whom||High|
|Salary Schedule for All Employees||Current||Showing title, current base salary and bonus for all employees; include any obligations to terminated employees, highlight any changes to salaries, bonuses or compensation to employees after the transaction||High|
|Consultants||Current Period||List of consultants, role and cost||High|
|Projected Hiring Plans||Next 3 Years||Projected hires by month, with title and projected compensation||High|
|Transactions with Officers||Current Period||Any existing or proposed agreements, understandings or transactions between the Company and any of its officers, directors, material stockholders or any affiliate including, without limitation, non-competition agreements, employment agreements and non-form offer letters||High|
|Insurance||Current Period||Any insurance policies (including documentation regarding workers’ compensation insurance) held by the Company or of which the Company is a beneficiary and a summary of such policies, if available||Medium|
|Offer Letter||Current Period||Copy of the Company’s standard offer letter||Medium|
|Special Employee Agreements||Current Period||All employment agreements and other documents (such as offer letters) that contain change of control, severance provisions, bonus provisions or acceleration of stock or option vesting||Medium|
|Employee Benefits||Current Period||Any employee benefit plans and arrangements, including, without limitation, stock option plans, bonus plans, pension plans, 401(k) plans insurance plans and forms of agreements (including copies of all form of option and stock agreements that are in use)||Medium|
|Employee Accrued Expenses||Current Period||A list and breakdown of all outstanding accrued salary, paid time off, and reimbursable expenses.||Medium|
|Foreign Employees||Current Period||If the Company has any foreign employees, a list (separated by country) of all benefits provided to foreign employees, and their locations||Medium|
Of course, we suggest working with an experienced startup-focused accounting firm, like Kruze Consulting, well before your startup is in the due diligence phase of an important transaction.
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|Senior Staff Accountant||$110|
We're huge fans of Vanessa and the folks at Kruze Consulting. They set up our books, finances, and other operations, and are constantly organized and on top of things. As a startup, you have to focus on your product and customers, and Kruze takes care of everything else (which is a massive sigh of relief). I highly highly highly recommend working with Vanessa and her team.
Kruze's financial infrastructure empowers me to focus on my team, our products, and our customers. As an entrepreneur I couldn't be happier.
Avochato has been growing rapidly in the past year – in fact, too quickly for us to keep up with books, taxes, and budgeting for growth. Partnering with Kruze Consulting has been fantastic to manage, track, and analyze our finances while we continue focusing on building our customer base. Kruze’s team knows what startups need.
I had a great experience working with Kruze Consulting when we raised Series A. They know what VCs need to see, and how to present a startup’s books and finances. If you are going to raise venture capital, you need experts like Kruze.
Kruze Consulting is the perfect Accounting, Finance and Tax partner for Los Angeles Startups. Kruze delivers exceptional monthly reporting and financial projections. When we need help with benefits or payroll, Kruze solves our problems. Kruze does our taxes for a fraction of what previous accountants have charged. Thank you Kruze for being a great partner.
Being a repeat tech entrepreneur, I know how challenging it is to find the ideal CFO - not only is it often expensive to find the right one, but CFOs who combine expertise with scrappiness, market vision and perspective with detail orientation and 'roll up your sleeves' execution is near impossible for an early stage company. So I've been thrilled to work with Kruze Consulting, who not only provide all the ideal characteristics of a top-tier tech CFO, but also live and breathe entrepreneurship themselves. I've known Scott and Vanessa for many years and their deep personal integrity and strong reputation in the industry and made it an easy decision to work with them again.
NIH, NSF, and SBIR grant compliance can add a lot of overhead for a start-up. The Kruze team makes it easy, so we can spend our time growing the business instead of shoveling paperwork.
As a startup, it’s incredibly important to keep track of where our money is coming from and where it’s being spent. Kruze Consulting really helps keep our books and taxes in order so that we can focus on the core business. Extremely responsive and very professional, the accountants at Kruze Consulting are a pleasure to work with. We’d highly recommend their services.
Startups are our niche, and our passion. Our clients have raised over half a billion in venture capital financing in the past 12 months. We are one of only a few accounting firms that specialize in funded startups - we only offer financial and tax services to fast growing startups in the Seed, Series A, Series B and Series C stages.
We know how to de-risk your startup’s next venture capital round. Our team makes sure sure you are ready to fly through your next VC’s accounting, HR and tax due diligence. And when you use us as your bookkeeper, we set up and keep up-to-date a due diligence folder so you can get that next round of fundraising.
Our practice is built on best of breed cloud accounting software like QuickBooks, Xero, Netsuite, Gusto, Zenefits, Expensify, Avalara, Brex iand Bill.com. Technology makes us more efficient, saving our clients money and letting us offer higher value services like FP&A modeling, 409A valuation and venture debt consulting. Startups deserve to work with CPAs using modern software.
Top angel investors and VCs refer Kruze because they trust us to give the right advice. Our clients are portfolio companies of top technology and Silicon Valley investors, including Y-Combinator, Kleiner, Sequoia, Khsola, Launch, Techstars and more. With us, your books and taxes are in order when it’s time to raise another round of venture financing.
Kruze Consulting works with a variety of funded Delaware C-Corps, but the majority of our companies have secured Seed, Series A, Series B and Series C. We look to partner with our startups, going beyond the typical accounting relationship and seeking to provide a higher level advisory role. We feel honored to be a part of making the world a better place, even if it’s one debit and credit at a time.
Startup CFO services, startup accounting and bookkeeping services, startup annual taxes, expense reports, payroll, benefits: we've got you covered. Custom tailored dashboards are provided weekly or monthly, depending on your preference. Startup founders are often too busy building their company that they don’t have time to take care of their finances. Traditionally, these startups have had to work with a basket of people to get their work done, including bookkeepers, accountants, AP clerks, CFOs, startup consulting companies, and tax accountants. Just coordinating the conversation between all these parties drained even more of a founder’s precious time. At Kruze Consulting, our founders have one point person to manage all startup accounting needs, which saves them time and money.