Due diligence for African startups: what investors will ask for

When a serious investor asks for due diligence, they are not asking politely. They are asking because they are close to writing a cheque and they need to know whether your startup is what you claim it is. Due diligence is the investor's final filter before commitment - and it is thorough, sometimes brutally so.

If you have raised capital before, you know this already. If you haven't, you need to understand that due diligence is not a bureaucratic formality. It is the moment when every claim you have made - about your revenue, your team, your IP, your compliance - gets tested against evidence. An investor will spend weeks, sometimes months, combing through your data room, talking to your customers, checking your contracts and asking your lawyer questions you didn't expect. They will find problems. Your job is to find them first, fix what you can, and explain what you cannot.

This playbook tells you exactly what investors will ask for, how to organise it, and how to prepare your startup so due diligence becomes a process you can control rather than one that controls you.

What due diligence actually is

Due diligence is the investor's investigation into your startup's legal, financial, operational and market standing. It happens after a term sheet is signed (or sometimes before, depending on the investor and the round). The investor's goal is to confirm that:

1. Your financials are accurate and your growth is real.
2. You own what you claim to own (IP, customer contracts, domain names).
3. Your team is who they say they are and have no legal conflicts.
4. You are compliant with Nigerian, African and any relevant international law.
5. Your cap table is clean and there are no hidden claims on the company.
6. Your customers are real and your revenue is recurring where you claim it is.
7. Your product works and your technology is defensible.

The investor will appoint a lawyer, sometimes an accountant, and sometimes a technical advisor to run this investigation. They will have a checklist. You need to have a better checklist and fill it before they ask.

The data room: what goes in and why

A data room is a secure, organised folder (physical or digital) where you keep every document an investor might ask for. It is not a filing system. It is evidence. It must be:

• Organised by category so an investor can find what they need in minutes, not hours.
• Complete - if a document exists, it must be in the room. Hiding something and hoping they don't find it is how deals die.
• Accurate - every document must match every other document. If your cap table says you have 1 million shares but your articles of association say 2 million, you have a problem.
• Dated - every document must have a clear date so the investor can understand the timeline.

Many African startups still use Google Drive or Dropbox. That works for small rounds, but as you scale, use a proper data room tool. Intralinks, Merrill DataSite and Firmex are expensive. For early-stage startups, Citrix ShareFile, Box or even a well-organised Notion workspace will do. The point is: it must be secure, searchable and auditable.

Here is what goes in the data room, in order:

Corporate documents

1. Certificate of incorporation - from the Corporate Affairs Commission (CAC) in Nigeria, or equivalent in your country.
2. Articles of association - the founding rules of your company.
3. Memorandum of association - your company's purpose and powers.
4. Board resolutions - every major decision (raising capital, hiring a director, issuing shares) must have a board resolution.
5. Shareholders' register - a complete list of who owns what, updated monthly.
6. Cap table - a spreadsheet showing every shareholder, every share class, every option pool, every convertible note. This must reconcile with your shareholders' register.
7. Register of directors and officers - who runs the company and their details.
8. Tax clearance certificate - from the Federal Inland Revenue Service (FIRS) in Nigeria, or equivalent.
9. Business registration certificate - proof you are registered to do business.
10. Certificates of good standing - if you operate in multiple countries.

Financial documents

1. Audited or reviewed financial statements - for the last three years, if you have been operating that long. If you are pre-revenue, say so. Investors know.
2. Monthly management accounts - profit and loss, balance sheet, cash flow for the last 12-24 months.
3. Bank statements - last 12 months, unredacted. Investors want to see actual cash movement.
4. Tax returns - corporate and personal, for founders, for the last three years.
5. VAT/GST records - if applicable in your jurisdiction.
6. Payroll records - proof you are paying employees and taxes correctly.
7. Revenue recognition policy - how you count revenue. This matters hugely. If you are a SaaS company, do you recognise monthly recurring revenue upfront or over the subscription period? Explain it.
8. Customer contracts and terms - every material contract with a customer. "Material" usually means more than 5% of revenue.
9. Supplier contracts - every material contract with a supplier.
10. Unit economics spreadsheet - customer acquisition cost, lifetime value, churn rate, payback period. If you haven't calculated these, start now.

Legal and IP documents

1. Trademark registrations - any trademarks you own, in Nigeria and other countries where you operate.
2. Patent applications - if you have filed for patents, include the applications and status.
3. Software licenses - if your product uses open-source code, you must have a list of all open-source components and their licenses. This is critical. A GPL violation can kill a deal.
4. Employee agreements - templates and executed agreements for every employee. Include NDAs, non-competes and IP assignment clauses.
5. Founder agreements - the agreement between co-founders about equity, vesting, what happens if someone leaves.
6. Investor agreements - every term sheet, SAFE, convertible note or investment agreement from previous rounds.
7. Lease or property agreements - if you have an office, the lease. If you work from home, say so.
8. Insurance policies - directors and officers liability, cyber liability, any other relevant coverage.
9. Regulatory approvals - if your business requires a license (fintech, healthcare, telecom), include all approvals from the Central Bank of Nigeria (CBN), National Communications Commission (NCC), or equivalent.
10. Litigation history - every lawsuit, claim or dispute, even if settled. If there is none, provide a letter from your lawyer stating that.

Team and governance documents

1. Founder CVs - detailed, with references.
2. Board minutes - every board meeting, for the last three years.
3. Shareholder resolutions - every shareholder decision.
4. Conflict of interest register - any business relationships between founders or directors and the company.
5. Background checks - if you have done them, include them. If you haven't, the investor will.

Customer and market documents

1. Customer list - names, contract value, contract start and end dates, revenue in the last 12 months.
2. Customer references - names and contact details of 3-5 customers willing to speak to the investor.
3. Customer acquisition cost breakdown - how much you spend to get each customer, by channel.
4. Churn analysis - how many customers you lose each month and why.
5. Market research - any reports or data supporting your market size claims.
6. Competitive analysis - who your competitors are and how you are different.
7. Press coverage - any media mentions.

Operational documents

1. Product roadmap - what you are building and when.
2. Technical architecture diagram - how your product works.
3. Security audit reports - if you have done a security audit, include it.
4. Data privacy policy - GDPR compliance if you have EU users, Nigeria Data Protection Regulation (NDPR) compliance if you have Nigerian users.
5. Disaster recovery and business continuity plan - how you handle outages.
6. Vendor agreements - contracts with key vendors (cloud providers, payment processors like Paystack or Flutterwave, etc.).

How to prepare your data room before they ask

The best time to build a data room is now, not when you are fundraising. Here is how to do it:

Step 1: Audit what you have

Spend a day going through every folder, email and drive you own. List every document that exists. You will find gaps. That is the point.

Step 2: Create a template cap table

Your cap table is the most important document. It must be accurate. Use a tool like Pulley, Carta or a simple Excel template. It must show:

• Every shareholder (founders, investors, employees with options).
• Every share class (common, preferred, etc.).
• Every option pool.
• Every convertible instrument (SAFEs, convertible notes).
• Fully diluted ownership on a fully diluted basis (assuming all options and convertibles convert).

Reconcile this with your CAC records. If they don't match, fix it now.

Step 3: Get your financials in order

If you are using a bookkeeper, ask them to produce:

1. Monthly profit and loss statements for the last 24 months.
2. A monthly cash flow forecast for the next 12 months.
3. A balance sheet as of the most recent month.
4. A reconciliation of revenue: how much came from each customer, each product, each channel.

If you are not using a bookkeeper, hire one. This is not optional. An investor will ask for audited financials or at minimum reviewed financials. You cannot do this yourself.

Step 4: Get your legal house in order

Hire a lawyer - a Nigerian lawyer if you are in Nigeria, or an African tech lawyer if you are elsewhere. Ask them to:

1. Review your articles of association. Are they VC-friendly? (See VC-friendly corporate structures for African startups for a guide.)
2. Create templates for employee agreements, NDAs and IP assignment clauses.
3. Review your founder agreements. If you don't have one, create one now.
4. Audit your IP. Do you own your trademarks? Your domain? Your code? If not, fix it.
5. Check your regulatory compliance. If you are a fintech, are you compliant with CBN guidelines? If you are a data business, are you compliant with NDPR?

This will cost money. It is worth it. A legal problem found during due diligence can kill a deal or cost you millions in renegotiation.

Step 5: Get customer references

Identify 3-5 customers who are happy and willing to speak to an investor. Brief them on what the investor might ask. Be honest. If a customer is unhappy, do not put them on the list.

Step 6: Document your unit economics

Build a spreadsheet that shows:

1. Customer acquisition cost (CAC) - total sales and marketing spend divided by new customers acquired.
2. Lifetime value (LTV) - average revenue per customer multiplied by average customer lifespan.
3. CAC payback period - how many months it takes to recover the CAC from that customer.
4. Monthly churn - percentage of customers you lose each month.
5. Net revenue retention - for SaaS companies, the percentage of revenue you retain from existing customers after churn and expansion.

If your LTV is not at least 3x your CAC, or your CAC payback is longer than 12 months, you have a problem. Fix it before the investor asks.

What investors will actually ask for: the checklist

Here is what a serious investor will ask for during due diligence. Use this as a checklist to prepare:

Category	Document	Why it matters
Corporate	Cap table (fully diluted)	Confirms ownership and identifies hidden claims
Corporate	Board minutes (last 3 years)	Confirms governance and decision-making
Corporate	Articles of association	Confirms the company is structured correctly
Financial	Audited financials (last 3 years)	Confirms revenue is real and sustainable
Financial	Monthly P&L (last 24 months)	Shows growth trajectory
Financial	Bank statements (last 12 months)	Confirms cash movement matches reported revenue
Financial	Customer contracts (material)	Confirms revenue is contractual, not one-off
Legal	Trademark registrations	Confirms you own your brand
Legal	Employee agreements	Confirms IP is assigned to the company
Legal	Founder agreement	Confirms no hidden disputes
Legal	Litigation history	Confirms no legal surprises
Team	Founder CVs and references	Confirms team credibility
Team	Background checks	Confirms no criminal history
Customer	Customer list and references	Confirms customers are real and happy
Customer	Churn analysis	Confirms customer retention
Product	Technical architecture	Confirms product is defensible
Compliance	Tax clearance (FIRS)	Confirms no tax disputes
Compliance	Regulatory approvals	Confirms compliance with CBN, NCC, etc.

Common problems investors find (and how to avoid them)

In our experience at LaunchPad, we have seen investors walk away from deals because of these issues:

Messy cap table

A founder raised a pre-seed round but never issued share certificates. Months later, when raising Series A, the investor discovered the cap table didn't match the CAC records. The deal delayed by three months while lawyers sorted it out. Fix this now. Every share, every option, every convertible must be documented and recorded at the CAC.

Revenue that doesn't match bank statements

A SaaS founder reported $50,000 in monthly recurring revenue but bank statements showed $30,000. When asked, they admitted they had counted annual contracts as monthly revenue. The investor walked. Be conservative. If you have a one-year contract, count it as monthly revenue only if the customer has paid upfront or you have a payment plan. Otherwise, count it when the cash arrives.

IP that isn't owned by the company

A founder built the product before incorporating the company. He never assigned the IP to the company. When raising capital, the investor discovered that technically, the founder owned the code, not the company. This is a nightmare to fix. Assign all IP to the company immediately. If you built something before incorporation, sign an IP assignment agreement now.

Unlicensed open-source code

A fintech startup used a GPL-licensed library without realising it. When an investor's lawyer ran a code audit, they found it. GPL requires you to open-source your entire product if you use GPL code. The startup had to rewrite the code. Audit your dependencies. Use a tool like Black Duck or FOSSA to scan your codebase for open-source licenses. If you use GPL, know the implications.

Regulatory non-compliance

A fintech startup did not have CBN approval. The investor's lawyer discovered this during due diligence. The investor walked because the regulatory risk was too high. Get compliance right. If you are a fintech, contact the CBN's Financial Technology Division. If you are a telecom startup, contact the NCC. If you handle personal data, ensure NDPR compliance. Do not assume you are compliant. Ask.

Founder disputes

Two co-founders had a falling out but never documented it. One wanted to leave but had no vesting schedule, so he owned all his shares outright. The investor could not proceed because it was unclear who actually controlled the company. Have a founder agreement. It must cover equity, vesting (usually 4 years with a 1-year cliff), what happens if someone leaves, and dispute resolution.

How to structure your data room

Use this folder structure:

Data Room
├── 1. Corporate Documents
│   ├── CAC Certificate
│   ├── Articles of Association
│   ├── Memorandum of Association
│   ├── Board Resolutions
│   ├── Cap Table (Current)
│   ├── Shareholders Register
│   └── Directors Register
├── 2. Financial Documents
│   ├── Audited Financials (2023, 2024, 2025)
│   ├── Monthly Management Accounts (Last 24 months)
│   ├── Bank Statements (Last 12 months)
│   ├── Tax Returns
│   ├── Payroll Records
│   └── Unit Economics
├── 3. Legal & IP
│   ├── Trademark Registrations
│   ├── Patent Applications
│   ├── Open Source Audit
│   ├── Employee Agreements
│   ├── Founder Agreement
│   ├── Previous Investment Docs
│   ├── Lease Agreement
│   └── Insurance Policies
├── 4. Team & Governance
│   ├── Founder CVs
│   ├── Board Minutes
│   ├── Conflict of Interest Register
│   └── Background Checks
├── 5. Customers & Market
│   ├── Customer List
│   ├── Customer References
│   ├── Churn Analysis
│   └── Market Research
└── 6. Operations
    ├── Product Roadmap
    ├── Technical Architecture
    ├── Security Audit
    ├── Data Privacy Policy
    └── Vendor Agreements

The term sheet and what comes next

Once you have signed a term sheet, you will enter a period called "closing." During closing, the investor's lawyer will conduct due diligence. You will be asked for every document in this playbook. You will also be asked follow-up questions. For a detailed breakdown of what a term sheet actually means, see A startup term sheet, line by line - from a Nigerian founder's view.

The due diligence period typically lasts 4-8 weeks. During this time:

1. You will provide documents.
2. The investor's lawyer will ask follow-up questions.
3. You will answer them, sometimes with help from your lawyer.
4. The investor may conduct technical due diligence (code review, security audit).
5. The investor may conduct customer calls.
6. The investor may conduct reference calls on the founders.
7. Once all issues are resolved, you will move to closing.

Closing is when the money actually transfers. Until then, it is not real.

Preparing for different types of investors

Not all investors conduct due diligence the same way. Here is what to expect:

Venture capital firms

VC firms conduct the most thorough due diligence. They will have a checklist. They will use lawyers. They will do technical due diligence. They will call your customers. Prepare for everything in this playbook.

Angel investors

Angels are often less rigorous, but serious angels will still ask for most of these documents. If an angel doesn't ask for financials or a cap table, they are not serious.

Family offices and institutional investors

Family offices often conduct very thorough due diligence because they are managing other people's money. Prepare as if you are raising from a VC.

Pre-seed investors

If you are raising pre-seed, investors may ask for less. They understand you may not have audited financials or years of revenue. But they will still want to see your cap table, your founding team's background, and your unit economics if you have them. See Raising pre-seed in Nigeria: what investors actually want in 2026 for a detailed guide.

Red flags that will kill a deal

Investors have seen a lot. These are the things that make them walk away:

1. Dishonesty. If you lie about revenue, customer numbers, or team background, the deal is dead. Investors can always find out.
2. Messy cap table. If you cannot explain who owns what, investors will not invest.
3. IP that you don't own. If you don't own your code, your brand or your data, you don't own your company.
4. Regulatory problems. If you are operating illegally or without required licenses, investors will not touch you.
5. Founder disputes. If there is any ambiguity about who controls the company, the deal will stall.
6. Unit economics that don't work. If your CAC is higher than your LTV, or your churn is too high, you don't have a sustainable business.
7. No clear path to revenue. If you have been operating for two years with no revenue and no clear path to revenue, investors will ask hard questions.

Timeline: when to prepare

You don't need to wait until you are fundraising to prepare. Start now:

• Month 1: Create a cap table and get it right. Assign all IP to the company.
• Month 2: Hire a bookkeeper and start tracking financials properly.
• Month 3: Hire a lawyer and get your corporate documents in order.
• Month 4: Audit your compliance (regulatory, data privacy, open source).
• Month 5: Document your unit economics and customer references.
• Month 6: Build your data room and keep it updated monthly.

If you do this before you start fundraising, due diligence becomes a process you control. If you wait until you are fundraising, due diligence becomes a process that controls you.

FAQ

Q: Do I need a lawyer to prepare for due diligence? A: Yes, especially for corporate and IP matters. A good tech lawyer in Nigeria or Lagos costs between ₦500,000 and ₦2 million for a startup audit. It is worth it. If cost is an issue, use a junior lawyer or a legal tech platform, but do not skip this.

Q: What if I don't have audited financials? A: If you are early-stage, investors understand. But you must have clean monthly management accounts and bank statements. If you are raising Series A or later, audited financials are non-negotiable.

Q: What if I have a co-founder dispute? A: Resolve it before fundraising. If you cannot resolve it, disclose it to the investor and explain how it will be resolved. Investors will not invest in companies with unresolved founder disputes.

Q: How long does due diligence usually take? A: 4-8 weeks for a Series A or later. Pre-seed due diligence may be faster (2-4 weeks) because the checks are less rigorous. Plan for the full 8 weeks.

Q: What if the investor finds a problem during due diligence? A: They will ask you to fix it or they will renegotiate the term sheet. Be honest, be responsive, and work with your lawyer to resolve issues quickly. Most problems can be fixed if you are proactive.

What to do next

1. Start with your cap table. If you haven't already, create a clean, fully diluted cap table and reconcile it with your CAC records. This is the foundation of everything else.

2. Hire a lawyer. Get your corporate and IP documents in order. If you are raising capital, this is non-negotiable. See VC-friendly corporate structures for African startups for guidance on what your structure should look like.

3. Build your data room. Use the folder structure above and start filling it in. Update it monthly. By the time an investor asks for due diligence, you should be able to provide everything in 48 hours.