Navigating Investor Due Diligence: Insights from Founders and VCs
Investor due diligence is one of those crucial but often opaque processes every startup founder must navigate when raising capital. To help shed light on what really goes on behind the scenes—and how founders can better prepare—beams recently hosted a panel discussion featuring two experts who have seen it all from both sides of the table.
Moderated by Jana, co-founder of beams, the session featured:
- Ashley Smith, Solo GP at Vermilion Cliffs Ventures and early investor in beams, who brings experience from her time at GitHub, GitLab, Parse, and Twilio.
- Jürgen Vogel, former founder of an AI company, now advising VCs on tech due diligence after a successful exit.
Here are the key takeaways from their candid conversation.
📍 Early-Stage vs. Late-Stage Due Diligence
Ashley emphasized how early-stage investing is more about the founders and potential market than deep technical audits. At pre-seed and seed levels, she often evaluates:
- Whether founders have worked together before.
- How they navigate stress and challenges.
- Whether the market shows real, scalable potential—even if there’s no product yet.
Her diligence process includes speaking with early customers, assessing market appetite via her tech network, and acting fast to minimize wasted time if the fit isn’t right.
As rounds get larger (Series A, B, and beyond), diligence gets deeper. Ashley noted that many A-rounds now get preempted—meaning investors begin researching and forming theses long before engaging with founders. Her advice: “Assume you’re always being diligenced.”
🛠️ Tech Due Diligence – The Inside View
Jürgen, now a due diligence advisor for VCs, revealed what founders often overlook:
“What I never realized as a founder is how much the investment hypothesis shapes the diligence process.”
He stressed that founders should tailor how they present their stack, processes, and growth potential to align with the investor’s thesis. Some common gaps founders overlook:
- Technical debt without clear mitigation plans.
- Lack of visibility into open-source licenses (a real risk if licenses change post-launch).
- Overloaded CTOs wearing too many hats with no hiring roadmap.
He also shared how the tool stack—especially SaaS usage—is increasingly scrutinized. Messy stacks can indicate chaos. One company he evaluated had 100 tools for 200 employees. Not having an overview of your tool stack can be a red flag.
⚠️ Red Flags That Raise Eyebrows
Both panelists shared key moments that have derailed founder-invstor conversations:
- Disagreement among co-founders during pitch calls. Even slight conflict can signal deeper misalignment.
- Buying GitHub stars. Yes, it’s a thing. And Ashley now runs background checks on star growth to detect manipulation.
- Security blind spots in SaaS tooling—especially lacking account controls and data visibility.
✅ How Founders Can Prepare
For founders gearing up to raise—especially those bootstrapped or early stage—Ashley and Jürgen recommended:
- Pitch deck + clarity. Keep it sharp and concise. Don't overwhelm investors—get them curious.
- Warm intros. Cold outreach is tough. Start building relationships early, even before you need funding.
- Transparency. It’s OK if not everything is perfect. What matters is showing awareness and a plan.
- Hiring readiness. Show that your stack and structure can scale, and that your onboarding processes support new talent.
- Document your risks. Whether it’s tech debt or unpolished areas, acknowledge them and outline how you’ll fix them.
💬 Final Thoughts
The session closed with a powerful reminder: due diligence isn’t just an investor’s checklist. It’s a storytelling opportunity for founders to show not just where they are—but where they’re going.
Big thanks to Ashley and Jürgen for their honest and actionable insights, and to everyone who joined the session live!
Want more panels like this? Visit https://usebeams.com/events or follow us on LinkedIn for future sessions, resources, and updates.
Want to generate your tool stack overview?
Try our SaaS insights platform for a comprehensive view of all your tools, incl. usage and actionable recommendations to maximize your ROI. It only takes 1 minute to set up:
https://app.usebeams.com/company-login
📝 Q&A – Live Questions form the Audience and Answers from the Panelists
❓ Q1: Any recommendations for deep tech or hardware startups, especially when sharing IP that is not yet patented? NDA or no NDA?
🗣️ Answer (Jürgen):
Due diligence is especially critical for deep tech because many claims—like proprietary AI—can be difficult for investors to evaluate without expert validation. That’s why it’s important to:
- Be transparent and open during tech diligence to build trust.
- Be willing to walk someone through your technical stack and processes clearly.
- While an NDA may offer some peace of mind, it’s not always standard practice. Instead, focus on who you’re sharing with (trusted advisors vs. broad audiences), and structure your storytelling to protect your most sensitive know-how while still communicating credibility.
❓ Q2: Do you see it as a concern if a company hasn't raised funding in the past 2–3 years?
🗣️ Answer (Ashley):
Yes, it can be a concern—especially in the current market. Many companies that raised easily during the boom two to three years ago are now struggling to raise follow-on rounds due to lack of traction or shifts in the market.
If you're a founder in this position, be ready to:
- Explain the narrative: Why didn’t you raise again? What progress have you made instead?
- Frame it as intentional if it was (e.g. focusing on product-market fit, bootstrapping, etc.)
- Reinforce traction and what’s changed that now makes your startup a strong investment opportunity.
❓ Q3: What should I have ready before reaching out to investors for a seed round, beyond the pitch deck?
🗣️ Answer (Ashley & Jürgen):
- Warm intros are still the most effective route—network ahead of the raise.
- Prepare a crisp and clear one-paragraph explanation of what your startup does.
- Be transparent about areas still in progress, but show your plan.
- Highlight founder background—especially technical experience or previous startups.
- If a deeper tech due diligence is anticipated, be ready to explain how things are built, your roadmap, and potential risks (even if not everything is fully polished yet).
❓ Q4: How do you evaluate hiring strategies in a due diligence process?
🗣️ Answer (Jürgen):
Hiring strategy is evaluated through several lenses:
- Technology choices: Are you using languages and frameworks that are easy to hire for in your market?
- Talent pipeline: Are you hiring locally, remotely, or in niche markets? Is talent accessible?
- Onboarding and dev experience: Do you have the tools and structure for new hires to become productive quickly?
- Org structure and scaling readiness: Can your tech platform support multiple teams as you grow?
❓ Q5: How transparent should a startup be during due diligence, especially at early stage when there's little traction?
🗣️ Answer (Jürgen):
Transparency builds trust, but it’s not about disclosing every flaw. Instead:
- Acknowledge what’s not yet perfect, and show that you have a plan to address it.
- Investors don’t expect perfection—they expect awareness, realism, and forward-thinking.
- Transparency about known risks (e.g. tech debt, roadmap challenges) paired with clarity about how you’ll solve them is often more impressive than pretending everything is smooth.
❓ Q6: What does due diligence look like at pre-seed stage?
🗣️ Answer (Ashley):
At pre-seed, it's all about:
- Founders: Have they worked together before? Do they have grit and resilience?
- Market: Is there potential for a big opportunity?
- Early signs of validation: Maybe a few pilot customers or strong user interest.
- Backchannel checks: Investors often quietly reach out to mutual connections or early users. Pre-seed diligence is quick and scrappy—founder quality and vision are everything.
❓ Q7: How do you adjust a company’s valuation if they haven’t raised recently?
🗣️ Answer (general):
The lack of a recent round doesn’t automatically lower valuation—but it raises questions:
- What’s the reason for the gap? Lack of traction? Market change?
- Is the company still growing, or did it plateau?
- Founders should come prepared to contextualize the gap and show how the company has progressed in other ways (revenue, customers, product maturity).