The term sheet is not the finish line. Between signed term sheet and wired funds sits due diligence, and diligence kills more rounds than valuation ever will. The kill is almost never dramatic. It is a slow bleed of confidence: missing contracts, an unassigned IP file, a founder handshake that was never papered, a customer concentration nobody flagged. Each finding pushes the close by a week. Enough weeks and the market moves and the deal quietly dies.
The founders who close on time build the data room before the term sheet, not after. Here is the room, folder by folder.
A clean data room has six top-level folders in this order. Any order will work; this one matches the order most VC associates open them:
1. Corporate & Legal 2. Financials 3. Intellectual Property 4. Product & Technology 5. Commercial & Customer 6. People & HR
Everything else — cap table, prior financings, board minutes — lives inside these six.
The point of this folder is to prove the company exists, is properly owned, and is not sitting on any latent liability.
Cap table, fully diluted, as an editable spreadsheet — not a screenshot. Include options granted, exercised, and available in the pool.
All prior financing documents. SAFEs, convertible notes, priced round docs, side letters. Every single one. A missing SAFE surfaces in diligence and rewrites the cap table.
Stockholder consents and board minutes for every action taken since formation. If board minutes were never kept, ratify them now.
Good standing certificates from the state of incorporation and every state you operate in.
Any prior litigation, threatened litigation, or regulatory action. Disclose. Investors find out anyway, and finding it themselves is a trust-killer.
The trap: founders skip old SAFEs from friends and family because "they are tiny." They are not tiny in diligence. Every instrument that could ever convert to stock belongs in this folder.
The goal here is not to prove the numbers are impressive. It is to prove the numbers are real.
Monthly financials — P&L, balance sheet, cash flow — for the last 24 months.
Financial model, live and editable, ideally the same one you pitched from.
Tax returns — federal and state — since inception. If you have not filed, say so up front.
All debt agreements — venture debt, credit lines, equipment leases, founder loans.
Revenue backup. Cohort tables, MRR/ARR bridge, churn calculation methodology. If you claim $2.4M ARR, the folder should let an associate rebuild that number from raw invoices.
The trap: the pitch deck ARR and the QuickBooks ARR do not match. Reconcile them before diligence, in a one-page bridge, and put the bridge in the folder.
This is the folder where deals go to die. Every founder assumes the IP is fine. Diligence is where you find out it is not.
Assignment of IP from every founder and early contributor. If a co-founder wrote code before the company was formed, there needs to be a signed assignment moving that IP to the company. No exceptions.
Proprietary information and inventions assignment agreements (PIIAs) signed by every employee and contractor. Every one.
List of registered IP — patents, trademarks, copyrights — with filing status.
List of domain names, in the company's registrar account, not a founder's personal Gmail.
Open source policy and a list of open-source components used in production, with their licenses. GPL contamination is a real diligence finding.
The trap: the freelance designer who built your logo three years ago never signed anything. That logo is technically not the company's. Get the assignment now.
Investors do not need to review your code. They need to see that a competent CTO could take over tomorrow.
Tech stack summary with hosting providers and third-party services.
Security posture — SOC 2 status, penetration test summaries, data handling policy.
List of any customer data incidents, even small ones. Disclose.
Customer list with revenue by customer for the last 24 months. Concentration matters — if your top three customers are more than 30% of revenue, put it up front and explain the plan.
All non-standard contracts — anything with above-market terms, MFN clauses, exclusivity, or unusual termination rights.
Marketing spend and CAC/LTV methodology, with the underlying data.
The trap: a founder-signed contract with a friendly customer that gives them a perpetual free license or first-refusal rights on M&A. It is in there. Find it before an associate does.
Org chart with names, titles, start dates, and reporting lines.
Employee census — salary, equity, vesting start, cliff status, PIIA on file (Y/N).
Offer letters and employment agreements for every current employee.
Founder employment agreements with vesting schedules, acceleration provisions, and non-compete/non-solicit terms.
The trap: an early employee who left on bad terms and still has vested options they never exercised. Their exit paperwork matters.
You do not need all six folders on day one of the raise. You need them in this order:
1. Before you send the deck: Cap table + fully-diluted spreadsheet, current-month financials, and a one-page architecture diagram. This is what a curious investor asks for in the second meeting. 2. Before partner meeting: Add monthly financials for 24 months, customer list with concentration, and any prior financing docs. 3. Before signed term sheet: Fill out every folder above. Diligence starts the day the term sheet is signed, and any gap is a delay.
Before you open the room to an investor, sit with your co-founder for five minutes and ask:
1. Is there any founder handshake we never papered? 2. Is there any contractor who wrote real code without a PIIA? 3. Does our stated ARR reconcile to the P&L? 4. Is any customer more than 20% of revenue without a plan to explain it? 5. Is there any prior financing instrument — SAFE, note, warrant — that is not in the room?
The founders who close cleanly do one thing the rest do not: they maintain the data room between raises. Every new customer contract, every new hire, every new option grant goes in the folder the week it happens. When the next raise starts, the room is ready in an afternoon, not a month.
Diligence is not a test of your company. It is a test of how well you have run it. Build the room now.
