Good diligence is not about the length of the checklist. It is about asking the questions that reveal how a business really works, and then listening carefully to the answers. Whether you are an angel writing a first cheque, a family office taking a minority stake or a non-executive director joining a board, these six themes cover the ground that matters.
1. Team and governance
The people will make or break the investment, and governance shows how they behave when things get difficult.
- Who are the founders and senior leaders, and what have they built or run before?
- How are decisions made today, and who has the final say?
- Is there a board? Who sits on it, how often does it meet, and are there minutes?
- Are there independent directors or advisers, and what do they actually contribute?
- How are founders and key staff incentivised, and is there an option pool?
- Has anyone important left recently? Why?
2. Market and customers
A good product in a weak market rarely becomes a good investment.
- Who exactly is the customer, and who signs the contract?
- Why do customers buy, and why do they leave?
- How concentrated is revenue? What happens if the largest customer walks away?
- Who are the real competitors, including doing nothing or building in-house?
- What would have to be true for the market to be as large as the plan assumes?
3. Product and operations
This is where the claims in the deck meet the day-to-day reality.
- What does the product do today, as opposed to what is on the roadmap?
- What does it cost to deliver, and how does that change with scale?
- Which suppliers, platforms or partners could disrupt the business if they changed terms?
- How is data held and protected, and who owns the intellectual property?
- Can you speak to two or three customers without the founders present?
4. Financials
Look for consistency between the story, the model and the bank statements.
- Are there management accounts, and are they reconciled to audited or reviewed financials?
- What is the monthly burn, and how many months of runway remain?
- How is revenue recognised, and are there one-off items in the numbers?
- What are the key assumptions in the forecast, and how sensitive is the plan to them?
- Are there loans, guarantees or other liabilities not obvious from the summary?
5. Legal and regulatory
In the GCC, licences, structure and jurisdiction matter as much as contracts.
- Where is the company incorporated, and does the structure make sense for the business?
- Does it hold the licences needed in each country where it operates?
- Is the cap table clean, and are all share issues properly documented?
- Are there shareholder agreements with vesting, drag, tag or veto rights you should know about?
- Is there any current or threatened litigation or regulatory action?
- Do employment arrangements comply with local labour law?
6. The deal itself
Finally, understand exactly what you are buying and what rights come with it.
- What is the valuation based on, and how does it compare with recent rounds?
- What class of shares are being offered, and with what preferences?
- What information and consent rights will investors receive?
- Will there be a board seat or observer seat for this round?
- How will the money be used, and what milestones should it reach?
- What is the likely route to an exit, and over what timeframe?
Using the answers
Diligence is a conversation. Be wary of answers that change depending on who is asking, and of founders who resist reasonable questions. Equally, a founder who answers openly, including about weaknesses, is often the best signal you will get.
If you are joining the board rather than investing, the same questions apply. A non-executive director needs to understand the business, its risks and its governance before accepting a seat.
This article is general information, not investment, legal or tax advice. Take independent professional advice before making any investment.