Investor Due Diligence
Sample output showcase
How I verify investments in founder-run companies, startups and small & medium businesses — a walkthrough of the scorecards, financial analysis and red-flag registers I deliver.
All companies, findings and figures shown are illustrative — not a real engagement.
Why it matters
The constraint is verifiable information, not capital
Small-business investing is a multi-trillion-dollar opportunity gated by information asymmetry. Capital is available and demand is deep; what is scarce is decision-grade information about the companies seeking it. Private small companies disclose little — informal records, cash-heavy books and related-party dealings are common, and little of it is visible from the outside.
Unmet financing demand
Of formal MSMEs across 119 emerging-market and developing economies (2019).
Of all firms
Worldwide are micro, small or medium enterprises — yet access to finance is their top-cited barrier.
Opacity → priced risk
Due diligence converts what is hidden into a decision an investor can price and act on.
Source: IFC / SME Finance Forum, MSME Finance Gap (2019); IFC press release, May 2024.
Three risk profiles
One framework, three ways to fail
The same five workstreams apply to every engagement; the emphasis shifts with the legal form, stage and operating history of the target.
Founder-run
Typical risk: personal and business funds commingled; prior-venture or related-entity history obscuring past liabilities; total key-person dependency on the founder.
Where diligence focuses: founder integrity, litigation and credit history; bank statements against filed returns; business-continuity and succession.
Seed – Series A
Typical risk: unaudited or thin financial history; projections that outrun contracted revenue; gaps in IP assignment and founder-equity records.
Where diligence focuses: cap table, ESOP and founder vesting; unit economics tested against actual cohorts; IP ownership, key contracts and regulatory path.
SMBs
Typical risk: customer concentration and informal credit terms; related-party pricing that inflates margins; statutory arrears in tax, labor or licensing.
Where diligence focuses: quality of earnings and cash-flow normalization; customer and supplier verification calls; compliance history across tax, labor and licenses.
The framework
Five workstreams, one weighted score
Each workstream is scored 1–5 against documented evidence, weighted, and combined into a single risk rating from A to D.
Rating scale: A — minimal risk, proceed on standard terms · B — manageable risk, proceed with conditions · C — material concerns, renegotiate structure or price · D — critical issues, recommend decline.
Weights shown are the default model and are adjusted per engagement.
How an engagement runs
A four-week engagement, findings as they surface
A fixed sequence with weekly checkpoints; findings are flagged to the investor as they emerge, not saved for the final report.
Kickoff & data request
Scope and hypothesis agreed with the investor; tailored document checklist issued; management interview and walkthrough.
Desk review
Financial statements normalized and rebuilt; registry, litigation and credit searches; filings cross-checked against the books.
Verification
Site visit and asset inspection; customer and supplier calls; bank and tax-record authenticity checks.
Report & readout
Full report with rating and conditions; red-flag register with evidence; investment-committee readout.
Need a faster read? A five-day Snapshot Review covers registry standing, founder background and headline financials — enough to decide whether a full engagement is warranted.
Sample output — illustrative
What the deliverable looks like
Four representative pages from a report. All names, figures and ratings are illustrative.
1 · Investment snapshot
The one-page verdict an investor reads first — the rating, score by workstream, headline financials and the conditions attached to a proceed.
Industrial components distribution
Founder-run company · China · proposed ticket for a 22% stake.
Overall rating: B Proceed with conditions
| Revenue (FY) | 18.4 |
| Adjusted EBITDA (FY) | 2.1 |
| Net debt | 1.3 |
| Customer concentration (top 1) | 24% |
Conditions precedent to closing:
1 · Escrow of outstanding statutory dues before disbursement.
2 · Key-man insurance and a business-continuity plan for the founder.
3 · Monthly MIS reporting covenant for the first 24 months.
2 · Normalized financials (quality of earnings)
Small-company books rarely reflect run-rate economics; every engagement rebuilds revenue, margins and cash flow from source records.
| Adjustment | FY |
|---|---|
| Reported EBITDA | 2.7 |
| Owner salary normalized to market | (0.3) |
| Related-party rent above market rate | (0.2) |
| One-time insurance claim removed | (0.1) |
| Adjusted EBITDA | 2.1 |
Adjusted EBITDA is 22% below the reported figure — driven by related-party and one-off items typical of founder-run companies, not by deteriorating demand.
3 · Red-flag register
Every finding severity-ranked, with the evidence it rests on and what it means for the transaction.
| Severity | Finding | Evidence | Deal implication |
|---|---|---|---|
| Critical | Undisclosed litigation against the founder in a prior venture | Court-record search; omitted from the disclosure schedule | Full disclosure and indemnity before any term sheet |
| High | 32% of revenue from a single related party | Ledger review; common directorship | Price on third-party revenue only; related-party cap in the SHA |
| High | VAT (增值税) filings inconsistent with reported revenue in two quarters | Filed returns vs. management accounts | Escrow of potential dues; auditor certificate pre-closing |
| Medium | Total key-person dependency; no second-line management | Org chart; site interviews | Key-man insurance and a 12-month continuity plan |
| Medium | Primary warehouse lease expires in 2027, no renewal clause | Lease deed review | Renewal or relocation as a condition precedent |
Critical findings stop a deal or reset its structure; High findings move price or terms; Medium findings become covenants and conditions. The register is the agenda for the term-sheet discussion.
4 · Founder & registry verification
When one person is the company, verifying that person and the company's legal standing is the core of the engagement.
| Check | Source | Status |
|---|---|---|
| Founder identity & KYC | ID card (身份证) and address proof | ✓ Verified |
| Incorporation & registry standing | Market-regulation registry (国家企业信用信息公示系统) | ✓ Verified |
| Litigation & disqualification search | Court records, director lists | ⚓ Flag |
| Credit bureau & borrowing history | Bureau report (with consent) | ✓ Verified |
| Tax filing history (3 years) | Filed returns vs. books | ⚓ Flag |
| Bank statement authenticity | Direct bank confirmation | ✓ Verified |
For a founder-run company, risk sits with a single person: ownership, signing authority and know-how concentrate in one founder; personal and business accounts often mix; prior liabilities can resurface through related entities — continuity and succession are checked as part of the plan.
What you receive
A complete decision package
Typical 40–60 pages
01 Executive summary, rating & recommendation · 02 Business overview & market · 03 Financial analysis & quality of earnings · 04 Legal, regulatory & compliance · 05 Founder & integrity · 06 Operations, assets & site visit · 07 Red-flag register · 08 Conditions, covenants & recommendations.
Built for each audience
Full report (PDF) · Data annex (Excel) — normalized financials and the scoring model, fully editable · Red-flag summary — a standalone severity-ranked register · IC one-pager & readout.
Engagement models
Matched to ticket size and timeline
Start with a snapshot to screen a pipeline, run full diligence before you sign, and keep monitoring after you invest.
| Model | Scope | Output | Turnaround |
|---|---|---|---|
| Snapshot Review | Registry standing, founder background, headline financials, litigation screen | 2-page screening note with go / no-go | 5 business days |
| Full Due Diligence | All five workstreams, site visit, third-party verification calls | Full report, red-flag register, data annex, IC readout | 3–4 weeks |
| Portfolio Monitoring | Covenant tracking, MIS review, compliance watch, annual re-verification | Quarterly monitoring memo with early-warning flags | Quarterly |
Fees are fixed per engagement and quoted upfront against a written scope — no success fees, no contingency on the investment decision, so the verdict stays independent.
See the output before you commit
Request a full anonymized sample report, or send a live deal and I'll return a scoped proposal with a fixed fee within two business days.