Series A Due Diligence Checklist for UK SaaS Startups: Financials, Legal, Data Room

Financial & Commercial Due Diligence: Proving Your Business Model

Securing Series A funding marks a critical shift for a UK SaaS startup. Your focus must evolve from simply building a product to proving you have built a scalable, predictable business. This transition is tested during due diligence, a process often seen as a daunting audit. However, it is more accurately a structured opportunity to tell your company’s story with verifiable data. For founders managing finances in systems like Xero and various spreadsheets, the key challenge is translating early-stage operational data into a compelling, investor-ready narrative. This guide outlines the core series a due diligence requirements for uk saas startups, breaking the process into manageable parts to help you prepare and demonstrate the strength of your venture.

Investors first seek to answer a fundamental question: is this a real, scalable SaaS business with predictable revenue? Your financial and commercial documents must provide a clear and compelling 'yes'. This begins with moving beyond the cash-in-the-bank view common in early-stage companies and adopting the accounting principles that underpin a mature SaaS operation. Preparing your financial documentation for series a is the most time-intensive part of the process, so it should be your first priority.

Transitioning from Cash to Accrual Accounting

The reality for most early businesses is pragmatic: your accounting, likely handled in Xero, is probably on a cash basis. Investors, however, require accrual-based accounting. This means recognising revenue when it is earned, not when an invoice is paid. This distinction is crucial for SaaS businesses, where a customer might pay for a full year upfront. Under accrual principles, you would recognise only one-twelfth of that payment as revenue each month.

The official standard for this is clear: IFRS 15 is the international accounting standard for Revenue from Contracts with Customers, relevant for SaaS revenue recognition policies (IFRS 15). Adhering to this standard creates a ‘Deferred Revenue’ liability on your balance sheet, which represents the service you still owe to the customer over the life of their contract. Getting this right is a non-negotiable step in startup audit preparation.

Defining and Tracking Core SaaS Metrics

With a proper revenue recognition policy in place, you can build credible SaaS metrics. Investors will scrutinise these figures intensely, so using consistent definitions is vital. These metrics form the language of your growth story.

• MRR/ARR: Monthly and Annual Recurring Revenue is the lifeblood of a SaaS business, representing the predictable revenue you can expect from your current customer base.
• Gross & Net Revenue Retention: This shows what percentage of revenue you keep from existing customers. Net revenue retention above 100% is a powerful signal, indicating that expansion revenue from upgrades and add-ons outpaces losses from churn.
• Churn (Logo & Revenue): This is the rate at which you lose customers (logo churn) or revenue (revenue churn). Investors will want to understand why customers are leaving and what you are doing to prevent it.
• LTV:CAC: The ratio of Customer Lifetime Value to Customer Acquisition Cost is a key indicator of long-term profitability and capital efficiency. A ratio greater than 3:1 is often considered a healthy benchmark at this stage.

Investors will want to see an ARR Reconciliation, often called an 'ARR bridge'. This table clearly shows the movement in your ARR from the start to the end of a period, breaking it down into new business, expansion, contraction, and churn. This demonstrates a sophisticated understanding of your growth drivers.

Building a Defensible Financial Model

Your core metrics and historical data all feed into your financial model. This forecast should not be a wild guess but a detailed, bottoms-up plan that demonstrates you understand the operational levers of your business. Its purpose is less about predicting the future with perfect accuracy and more about showing the logic behind your growth plan.

For instance, an effective model links a hiring plan directly to a revenue forecast. Consider a startup planning to hire two new Account Executives in Q3. The model would show their anticipated three-month ramp time, individual sales quotas, and average contract values. This translates directly into a calculated amount of new MRR expected in Q4 and beyond. This is the level of operational detail that makes a forecast defendable and credible during due diligence.

Legal Due Diligence: Securing Your Corporate Foundation

Once investors are confident in your commercial story, they must verify that the company is a clean, investable asset without hidden liabilities. They also need absolute certainty that the company unambiguously owns its intellectual property. This is where demonstrating robust legal compliance for startups becomes critical.

Maintaining Corporate Hygiene

Basic corporate hygiene is the starting point, and in the UK, it is non-negotiable. Companies House is the UK's registrar of companies where Confirmation Statements and PSC (Persons with Significant Control) registers must be filed and kept up-to-date (UK Companies Act 2006). Any discrepancies, late filings, or inconsistencies are an immediate red flag, suggesting a lack of operational discipline that can make investors nervous.

Your ownership structure, detailed in your Capitalisation Table (Cap Table), must also be perfectly accurate. This document tracks every share ever issued and must reconcile completely with all legal documentation. It should also detail any employee option pools. For UK startups, investors will specifically look for correctly administered tax-advantaged schemes. EMI (Enterprise Management Incentive) is a tax-advantaged employee share option scheme available to certain UK companies (HMRC), and any errors in its grant process can create unexpected tax liabilities for your team.

Similarly, for your early investors, compliance with government programmes is key. SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) are UK government schemes offering tax reliefs to investors in early-stage companies. Compliance is verified via SEIS/EIS3 certificates (HMRC). All associated paperwork must be meticulously organised and available for review.

Securing Intellectual Property

A scenario we repeatedly see is a startup hiring a freelance developer early on with a simple statement of work but no explicit IP assignment clause. Two years later, during diligence, investors discover that a core part of the codebase is not unambiguously owned by the company. This can delay or even derail a funding round while expensive legal remedies are sought. Ensure every employee, contractor, and advisor has signed an agreement that assigns all relevant intellectual property directly to the company.

Reviewing Contracts and Policies

Finally, investors will review key contracts and policies. This includes customer agreements, key supplier contracts, and data protection policies. As a UK company handling personal data, you must be registered with the regulator. The Information Commissioner's Office (ICO) is the UK's independent regulator for data protection and information rights, enforcing GDPR (Data Protection Act 2018). Proof of registration and a clear, compliant privacy policy are standard items on any uk saas investor checklist.

Building the Virtual Data Room: The Presentation

All your diligence documents culminate in the Virtual Data Room (VDR). The VDR answers the final key question: can the founding team present their company information professionally and transparently? Building a complete, well-organised data room can feel overwhelming with limited internal resources, but its importance cannot be overstated. These are the final operational due diligence steps that bring your story together.

The VDR is not just a folder for a document dump; it is the organised, professional evidence backing your pitch. The way you present the information is as important as the information itself. A messy or incomplete VDR implies a messy company and can undermine the trust you have worked hard to build.

A Clear and Logical Structure

At the Series A stage, using a secure folder system like Google Drive or Dropbox is perfectly acceptable. The key is structure. A logical, numbered folder system is essential for guiding investors through your materials and preparing for investor review effectively.

A typical VDR structure includes the following folders:

1. Corporate & Legal: Certificate of Incorporation, Articles of Association, Companies House filings, board minutes, and shareholder agreements.
2. Financials & Metrics: Historical financial statements (accrual-based), your SaaS metrics dashboard, the detailed bottoms-up financial model, and the ARR bridge.
3. Team & HR: Anonymised employee and contractor list (including start dates and roles), template employment contract templates, and all EMI scheme documentation.
4. Product & Tech: A product roadmap, high-level technical architecture diagrams, and copies of all IP assignment agreements.
5. Commercial & Sales: Your current sales pipeline, marketing plans, a list of key customers, and standard customer contracts or terms of service.

Adopt a consistent and clear document naming convention (e.g., `01.01_Articles_of_Association.pdf`). This simple discipline makes the process easier for investors and signals that you run a tight ship. It demonstrates professionalism and builds trust long before the first term sheet is offered.

Practical Takeaways for a Smooth Due Diligence Process

Navigating Series A due diligence is a significant undertaking, but it is entirely manageable with systematic preparation. For UK SaaS founders, the path is clearer when broken down into a few core principles.

First, start early. Diligence preparation isn't a last-minute scramble. It should be a continuous process of maintaining good corporate and financial hygiene from day one. This makes the fundraising process an exercise in collation, not creation under pressure.

Second, prioritise the financial story. Cleaning up your financial documentation, defining your SaaS metrics with care, and building a bottoms-up forecast take the most time and effort. Start here. Ensure your data from Xero or another accounting system can be translated into an accrual-based model that tells a consistent story of predictable growth.

Third, mind the legal details. Regularly check that your Companies House filings are current. Ensure every person who has ever contributed code, design, or content to your business has signed a robust IP assignment agreement. These steps prevent easily avoidable and costly delays.

Ultimately, your VDR, financial model, and pitch deck must all tell the same, coherent story. Discrepancies between these documents are the fastest way to erode investor trust. By approaching due diligence as a methodical storytelling exercise, you transform it from a feared audit into a powerful opportunity to prove the quality of your business and the strength of your team. For more resources, explore the investor due diligence hub.