DFS Lab Playbook: Series Seed Due Diligence Checklist

DFS Lab recently announced its first cohort of incubatees, which brought together five early-stage FinTech startups serving markets in South Asia and Sub-Saharan Africa. Given the diverse needs of these and future incubatees, we found ourselves asking: As an early-stage incubator, what’s the one metric that matters? How will we measure success?

We landed on a simple answer: Survival. Not just survival for its own sake — a form of madness in the world of startups — but survival as a frame of mind. When you think about it, survival is the ultimate constraint: If we don’t do this, we lose … everything. And that’s what we aim to instill — a sense of urgency, a fixation on the fundamental, an awareness of mortality.

By the end of our six-month incubation period, DFS Lab portfolio companies will have leveraged this mindset to secure, or be on the path to securing, a seed-stage investment that provides an additional 12–18 months of runway.

With that in mind, we created the following due diligence checklist — an admittedly overzealous list drafted in the spirit of the ‘Big Hairy Audacious Goal’ — to help our portfolio companies become investment ready.

ACCOUNTING

  1. Separate, siloed business bank account(s)
  2. Dedicated bookkeeping system
  3. Financial operations in place
  4. Financial projections created
  5. Taxes optimized

FUNDRAISING

  1. Executive summary ready
  2. Pitch deck ready
  3. Capitalization table ready
  4. Investor pipeline created

LEGAL

  1. Articles of incorporation
  2. Certificates of compliance (where necessary)
  3. Operating agreement
  4. Inventions assignment agreements
  5. Independent contractor agreements
  6. Non-disclosure agreements
  7. Shareholder agreements
  8. Advisory agreements
  9. Board agreements
  10. Board minute book
  11. External contracts
  12. Data Room
  13. Regulatory opinion
  14. Terms of service
  15. Privacy policy

PRODUCT

  1. Minimum viable product identified
  2. Product/Market fit reached, or almost reached
  3. Optimal pricing identified
  4. Key performance indicators identified and implemented
  5. Disaster recovery plan

STRATEGY

  1. Key partnerships identified
  2. Business development pipeline
  3. Customer acquisition strategies implemented
  4. Customer support and engagement strategies implemented
  5. Market sizing complete
  6. Competitive landscape understood
  7. Key risks and mitigants identified

TEAM

  1. Founding team in place
  2. Key hires made, or identified
  3. Advisors enlisted, or identified
  4. Board members enlisted, or identified

The above will help lay a strong foundation. Looking forward, we aim to build on that foundation by helping our portfolio companies connect with the customers, employees, investors, and mentors that will carry them from survival to growth. More on that to come…

What do you think? We’ll continue to adjust the above as we grow and learn, and we don’t presume to have it right. If too aggressive, what should we de-prioritize or remove? If incomplete, what should we add?

If you’re an early-stage investor, a corporate lawyer, a startup founder, or anyone else with an interest in this topic, we’d love to hear your thoughts.

To learn more about DFS Lab, visit www.dfslab.net or follow us on Facebook and Twitter.