Question 1

What is due diligence, and what do investors actually look at?

Accepted Answer

The **verification** process between agreeing terms and money arriving — where an investor checks that what they were told is true, and where deals most often slow down or collapse.

**Why it exists.** A term sheet is agreed on representations. Due diligence tests them, and identifies risks that change the price, the terms, or whether the deal proceeds at all.

**Commercial diligence.** Does the business work? Customer references and calls, market size, competitive position, pipeline quality, and — critically — whether reported metrics can be **reproduced from raw data**. Investors will rebuild your numbers themselves.

**Financial diligence.** Historic accounts, management accounts, revenue recognition, margins, working capital, and the quality of forecasting — specifically whether past forecasts proved accurate, which is treated as evidence about management.

**Legal diligence**, where most deals actually get stuck:

**Corporate records** — the share register, board minutes, resolutions, filings. Gaps take time to reconstruct.

**The cap table**, reconciled to the legal record.

**Intellectual property ownership.** This is the classic failure. Work done by contractors or by founders while employed elsewhere may **not belong to the company** without an assignment. Discovering this late is expensive and occasionally fatal.

**Employment** — contracts, contractor status, share scheme documentation.

**Key contracts**, especially **change of control** clauses that let a customer terminate on acquisition.

**Litigation and disputes.**

**Technical diligence** for software businesses — architecture, security, licence compliance for open-source components, and key-person dependency.

**What makes it go badly:** disorganised records; discovering problems the investor finds rather than disclosing them; metrics that cannot be reproduced; and slow responses, which read as either disorganisation or concealment.

**What makes it go well:** a **data room** prepared in advance; disclosing known problems **early and in writing**, since almost nothing is fatal if disclosed and most things are if discovered; and a single person coordinating responses.

**It cuts both ways.** Reference the investor with founders they have backed, including ones whose companies struggled — that is where the informative answers are.

General information, not legal advice.

Question 2

How do you buy an existing business, and what should you check?

Accepted Answer

Through a structured process — identify, value, offer subject to due diligence, investigate, negotiate, complete — and the investigation stage is where the real work is, because what you are buying

Question 3

What do the three financial statements actually tell you?

Accepted Answer

Each answers a different question, and reading any one alone gives a misleading picture — which is exactly why there are three. The profit and loss account (income statement). Did we make money over

Question 4

What are the common mistakes to avoid when starting a business?

Accepted Answer

Common mistakes to avoid when starting a business include lack of a business plan, underestimating costs, ignoring market research, and neglecting marketing.

Question 5

What should actually be in your terms and conditions?

Accepted Answer

The terms that govern what happens when things go wrong — because when everything goes right, nobody reads them. A contract is a risk allocation document, and the clauses that matter are the ones

Question 6

What is a cap table?

Accepted Answer

A capitalisation table records who owns what proportion of a company — every shareholder, every class of share, every option and everything that could become a share. What it contains: Every

Question 7

What are the best practices for creating a business plan?

Accepted Answer

Creating a business plan involves market research, defining a business model, setting objectives, and crafting a financial plan. Regular reviews ensure adaptability and success.

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