Pre-Investment Due Diligence in Bhilwara

What Is Pre-Investment Due Diligence?

Pre-investment due diligence is a staged, proportionate review done before an investment is committed, particularly for early-stage and smaller investments where a full-scale investigation would cost more than it is worth. It is organised in stages: a light screening review before a term sheet is signed, to avoid investing time in a deal that has fundamental problems, and a confirmatory review before closing, to verify the key facts on which the investment was based.

Early-stage companies have little financial history, so the review focuses on different things from a mature company diligence: who the founders are and whether they own and control the business; whether the cap table and previous share issues are correct; whether the intellectual property actually belongs to the company; the key contracts and any liabilities; compliance basics; and how the money will be used. These are the matters that most often undermine early-stage investments later.

The result is a short, practical report that flags red flags, lists conditions to be fixed before closing and suggests protections in the investment documents. It is lighter than investment due diligence, which is a full integrated review for larger investments. Due diligence is an investigation of facts on the basis of documents and information provided, within an agreed scope. It is not a valuation, not an audit and not a formal legal, tax or accounting opinion, and it cannot detect what is not disclosed.

Who Needs Pre-Investment Due Diligence?

• Angel investors and angel networks
• Seed and early-stage venture funds
• Family offices making smaller or first-time investments
• Individual investors putting money into startups or closely held companies
• Strategic investors making early minority investments
• Accelerators and incubators taking equity
• Founders who want to understand what an investor will check

When Is Pre-Investment Due Diligence Required?

It is not a legal requirement, but it is advisable when:

• An investor is about to sign a term sheet
• The company is early stage with limited records
• The cap table has complicated history, such as multiple founders, advisors or earlier convertible instruments
• The product depends on technology or IP created by founders, freelancers or others
• The company handles customer data or operates in a regulated activity
• The investor is a minority holder and relies on the promoters
• A confirmatory check is needed before funds are released

What Our Pre-Investment Due Diligence Includes

The review is scaled to the size of the investment and typically covers:

• Understanding the investment, stage, investor concerns and timeline
• Stage 1 screening: founders, business model, cap table, key red flags
• Founder and promoter checks: public records, litigation and references, within legal limits
• Corporate records: incorporation, share issues, resolutions, filings and registers
• Cap table verification: shareholding, instruments, ESOP and promised equity
• IP: ownership, assignment from founders and contractors, trade mark and domain status
• Key contracts: customers, suppliers, partners and any change-of-control or exclusivity terms
• Employment and key person arrangements
• Basic tax, compliance and licensing review
• Financial snapshot and runway, and review of how proceeds will be used
• Stage 2 confirmatory review before closing
• Report of red flags, conditions to closing and recommended investor protections

Legal and Practical Considerations

Founder IP assignment. Under the Copyright Act, 1957, ownership of work created by a founder or contractor does not automatically pass to the company unless assigned in writing or created in the course of employment. A missing assignment is among the most common issues in early-stage diligence.

Cap table and share issues. Issues of shares must follow the Companies Act, 2013, including resolutions, valuation where required, allotment and filings. Informal promises of equity to advisers or early employees can create claims. Convertible instruments and earlier rounds must be reflected.

Foreign investors. Investment by a non-resident must follow FEMA pricing, sector and reporting requirements.

Founder and background checks. Public records and references can be checked, subject to legality and privacy, and the information should be used only for the investment decision.

Proportionality. The scope is deliberately limited to the key risks. It does not replace a full due diligence if the investment later becomes larger.

Documents and protections. Findings are reflected in the term sheet, subscription agreement and shareholders agreement through conditions, representations and rights.

Limits. The review depends on information provided and cannot detect what is not disclosed.

Common Findings in Pre-Investment Due Diligence

• Founders' IP not assigned to the company
• Cap table not matching share issue records
• Promised equity to advisors or early team without paperwork
• Filings with the Registrar not made
• Trade mark or domain registered in a founder's personal name
• Customer contracts with change-of-control or exclusivity terms
• Licences or compliance missing for the activity
• Use of funds not aligned with the plan presented

Professional Fees, Government Fees and Timeline

Due diligence carries no government fee. Fees of advocates for opinions and charges for searches, if engaged, are separate. Our professional fees depend on the size of the investment, the number of entities and stages, and speed. Stage 1 screening can take 3 to 5 working days, and the full staged review typically takes 7 to 15 working days after information is received.

Pre-Investment Due Diligence vs Investment Due Diligence vs Transaction Due Diligence

Pre-investment due diligence is a staged, proportionate review for early-stage and smaller investments. Investment due diligence is the full integrated review for larger investments. Transaction due diligence is tied to the documents and mechanics of a specific deal. Related services include Investment Due Diligence, Startup Valuation and Valuation for Fundraising.

Need Professional Assistance With Pre-Investment Due Diligence?

A proportionate review before you invest can protect against the most common early-stage problems. The Legal Bank can help you structure and carry out pre-investment due diligence. Share your requirement to discuss the next steps.