Pre-Seed Due Diligence Checklist: What Investors Expect and How Founders Prepare

Pre-Seed Due Diligence: A US Founder's Guide to Investor Expectations

For pre-seed founders in the US, fundraising often feels like a second full-time job. Beyond perfecting your pitch, you are suddenly expected to produce financial documentation and legal paperwork that can feel stages ahead of your current reality. The good news is that investors at this stage are not looking for audited perfection. They are evaluating your credibility, discipline, and clarity of thought. According to DocSend's 2023 report, investors spend the most time on the 'Financials' slide of a pre-seed deck, using it as a proxy to judge these exact traits. They want to see that you have a command of your numbers and a realistic plan, even if the execution is still early. This guide provides a pre-seed investor due diligence checklist USA founders can use to prepare, focusing on the four key areas investors scrutinize before writing a check. For broader context, see the investor due diligence hub.

1. The Narrative: What Story Are Your Financials Telling?

Before an investor dives into your historical data, they want to understand your vision, articulated through a financial model. This document is the quantitative version of your pitch deck, answering the core question: can you simply articulate how your business will work and make money? For early-stage startup due diligence, the reality for most pre-seed startups is pragmatic. Your model is a test of your thinking, not a binding forecast.

Building a Bottom-Up Forecast

Investors universally expect a “bottom-up” forecast, not a “top-down” one. A top-down forecast, such as claiming you will capture 1% of a billion-dollar market, is often dismissed as undisciplined. A bottom-up approach is more credible because it builds revenue from specific, operational drivers you control. This demonstrates you understand the levers of your business.

For a SaaS startup, this means forecasting new monthly recurring revenue based on planned marketing spend, expected conversion rates from your sales funnel, and customer acquisition costs. For a deeptech or biotech company, the model might be based on grant funding timelines, key R&D milestones, and the planned headcount growth needed to reach them. An e-commerce business would build its forecast from advertising spend, website traffic, conversion rates, and average order value.

The Importance of the 'Assumptions' Tab

What founders find actually works is creating a dedicated ‘Assumptions’ tab in their spreadsheet. This is where you document and justify the logic behind your model. It should list every key driver, from cost per click and sales-cycle length to server costs per user and hiring timelines. This transparency in your startup financial documentation demonstrates rigor and makes your model defensible. Preparing for investor meetings starts here. A clear set of assumptions invites a productive conversation about the business itself, rather than a debate over the precision of your numbers.

2. The Proof: Can You Back Up Your Story?

Once you have established the narrative with your financial model, investors will look for proof in your historical performance. Is your data organized enough to show traction and validate the key assumptions in your forecast? This directly addresses a common founder pain point: producing reliable historical financials without a dedicated finance team. Investors understand you are likely using basic tools. A standard accounting system for pre-seed startups in the US is QuickBooks Online, often combined with data exports from Stripe and manual work in spreadsheets.

From Raw Data to a Clean P&L

Your primary goal is to convert raw bank and payment processor transactions into a simple, clean Profit & Loss (P&L) statement. This process does not require strict US GAAP compliance, but it does demand consistency. You should be able to clearly show month-over-month revenue, key expense categories like payroll, marketing, and R&D, and the resulting net burn. The objective is to provide a clear historical record that supports your go-forward plan and builds investor confidence.

Connecting Financials to Operational Metrics

More importantly, this historical data must connect to your key business metrics. Investors want to see that you understand the levers of your business. For instance, consider a P&L line item from QuickBooks. If 'Marketing & Advertising' shows a spend of $15,000 for the last quarter and your internal tracking shows you acquired 100 new customers in that period, you can confidently state that your blended Customer Acquisition Cost (CAC) is $150. Making this connection between your financials and your operational metrics is a powerful signal of founder competence. You can extend this analysis to other key metrics like Lifetime Value (LTV) or Gross Margin to provide a richer picture of your unit economics.

3. The Ownership: Who Owns What?

An investor needs to know exactly what they are buying into. A messy or poorly documented capitalization table is one of the fastest ways to create friction in a fundraising process because it raises questions about your attention to detail. The cap table must answer a simple question: is the ownership structure clean, simple, and free of unforced errors? This document is a direct test of your organizational skills.

Understanding SAFEs and Dilution

For US-based startups, this conversation inevitably involves SAFEs (Simple Agreements for Future Equity). It is a crucial part of US venture capital expectations that founders understand how these instruments work. As a key data point, post-money SAFEs have been the YC standard since 2018. This distinction is critical because it directly impacts founder dilution and provides investors with more certainty about their ownership percentage.

The math on a post-money SAFE is straightforward. An investment of $500,000 on a post-money SAFE with a $5 million valuation cap results in the SAFE holders owning 10% of the company immediately after the investment, calculated as $500,000 divided by $5,000,000. In contrast, a pre-money SAFE calculates ownership based on the valuation before the new investment is added. The same $500,000 investment on a $5 million pre-money cap would give the investor ownership of $500,000 divided by ($5,000,000 + $500,000), or approximately 9.09%. This subtle difference significantly impacts how much of the company founders retain. Presenting a clean cap table that accurately models the dilutive impact of all convertible instruments is a non-negotiable part of any pre-seed investor due diligence checklist USA investors will run.

4. The Foundation: Is the Company Legally Sound?

Finally, investors must verify that the company has a solid legal foundation upon which to build. Are the basic corporate and intellectual property (IP) documents in place to protect the business? This is where a well-organized data room becomes essential. Compiling these documents ahead of time prevents last-minute scrambles and signals to investors that you are organized and prepared for growth.

The Essential 10-Document Data Room

The investor document requirements at this stage are not exhaustive, but they are fundamental. A minimalist but complete data room is a key component of a successful pre-seed funding checklist. The essential documents include:

1. Certificate of Incorporation & Bylaws: These documents prove the company legally exists and is in good standing.
2. Board and Stockholder Consents: These show a record of proper corporate governance for key decisions, such as authorizing the issuance of stock.
3. Signed PIIAs for All Team Members: Proprietary Information and Invention Assignment agreements for all employees and contractors.
4. Founder Stock Purchase Agreements: These detail initial founder ownership, purchase price, and vesting schedules.
5. Financial Model and Historical P&L: The quantitative story and historical proof discussed in the first two sections.
6. Cap Table Spreadsheet: A detailed record of company ownership.
7. Copies of All Financing Instruments: All signed SAFEs, convertible notes, or other securities.
8. Major Customer or Partnership Agreements: Typically defined as contracts representing over 10% of revenue.
9. Founder and Executive Employment Agreements: These clarify roles, responsibilities, compensation, and any special terms.
10. Pitch Deck: The final version of the narrative you presented to the investor.

For more detail on requirements, see this legal due diligence guidance for US employment and equity specifics.

Critical, Deal-Slowing Documents

Among these, the most critical, deal-slowing documents are often the Proprietary Information and Invention Assignment agreements (PIIAs). An investor must be certain that the company, not an individual founder or contractor, owns all of the intellectual property it has developed. Missing or unsigned PIIAs create ambiguity around this core asset and can be a deal-killer. Similarly, having copies of major customer or partnership agreements provides tangible proof of commercial traction. For founders developing novel technology, protecting it early is vital; for provisional-patent basics see the USPTO guidance.

Practical Takeaways for Founders

Navigating pre-seed due diligence is about demonstrating credibility and foresight. It is not about having perfect, audited financials. Investors are betting on your ability to build a great business, and your diligence materials are the primary evidence of your capabilities. By focusing on telling a clear, data-supported story, maintaining a clean ownership structure, and ensuring your legal foundation is secure, you build the trust required to close a round.

Here are a few actionable founder fundraising tips to get started:

• Organize Your History: Use a tool like QuickBooks Online to categorize the last 6 to 12 months of transactions. Generate a simple, month-over-month P&L that clearly shows revenue, key expenses, and net burn.
• Build Your Narrative: Create a bottom-up financial forecast in a spreadsheet for the next 18 to 24 months. Clearly document every key operational driver on a dedicated 'Assumptions' tab.
• Clarify Ownership: Build a cap table that lists all equity holders and convertible instruments. Model their potential dilutive impact to show you understand how your financing decisions affect ownership.
• Assemble Your Data Room: Gather the 10 essential legal and financial documents into a secure folder before you begin outreach. Pay special attention to ensuring all PIIAs are signed by every contributor.

By methodically preparing these items, you transform diligence from a daunting obstacle into an opportunity to build investor confidence. This preparation is the most effective pre-seed investor due diligence checklist USA founders can follow to accelerate their fundraising process. Continue at the investor due diligence hub for more detailed guidance.

Frequently Asked Questions

Q: How far back should my historical financials go for a pre-seed round?
A: For a pre-seed round, investors typically want to see 6 to 12 months of historical financials. The goal is not to show a long history but to demonstrate consistent tracking and a clear understanding of your recent revenue, expenses, and burn rate, which validates your forward-looking plan.

Q: Do I need a lawyer to prepare for pre-seed due diligence?
A: While founders can assemble much of the data room, a lawyer is highly recommended for critical legal documents. This includes proper company formation, issuing founder stock with vesting, creating PIIA templates, and structuring financing instruments like SAFEs to avoid costly errors.

Q: What is the biggest red flag for investors in a pre-seed data room?
A: Two of the biggest red flags are a messy capitalization table and missing or unsigned IP assignment agreements (PIIAs). A messy cap table signals a lack of attention to detail, while IP issues create fundamental legal risks to the company’s value. Both can immediately slow or stop a deal.

Q: Is a detailed 5-year financial model necessary for a pre-seed round?
A: No, a 5-year model is generally not necessary or credible at the pre-seed stage. Investors focus on a realistic 18 to 24-month bottom-up forecast. This shorter timeframe is more grounded in your current operational plan and allows for a more substantive discussion about your immediate strategy.