Venture Investing:

Due Diligence

Sample Due Diligence Request List

By Venture Planning Associates. Prepared for San Diego Regional Technology Alliance Conference. Used by permission.

MEMORANDUM FOR XYZ.COM

Page 1     <<<     Page 2     >>>     Page 3

 II.         FINANCIAL INFORMATION

1. Financial Statements

1. Consolidated financial statements for all years and interim periods subsequent to the most recent fiscal year end

2. Monthly income statements for most recent 12 months

3. Internal financial (profit and loss, capital expenditures, etc.) projections, and all supporting information

4. Most recent business plan

5. List of any off-balance sheet liabilities not appearing in most recent financial statements (including the notes thereto)

6. Auditors reports ("management letters") and management responses

7. Summary of accounting policies to the extent not disclosed in financial statements

2. Tax Materials

1.  Federal, state and municipal returns

2. Description of and documentation relating to any pending issues with tax authorities

3. Tax basis of assets of the Company and of capital stock and assets of its subsidiaries

4. Tax sharing or indemnity agreements

5. Closing letters and closing agreements, appeals reports, tax litigation status, Internal Revenue Service ("IRS") rulings and technical advice memoranda, and any other material IRS documents and tax assessments documents

3.  Indebtedness

1. All instruments evidencing debt obligations or lines of credit and all agreements and material correspondence relating thereto

2. Any other actual or contingent indebtedness (e.g., loan guarantees, letters of credit, banker's acceptances, swaps) not reflected in most recent financial statements and all agreements and material correspondence relating thereto

3. List of existing key financing institutions

4. Miscellaneous

1. Schedule of current notes payable/receivable, intercompany advances and description of cash management system

2. Description and listing of current reserves

3. Description of revenue/cost recognition policies

4. Breakdown of selling, distribution, marketing and administrative expenses

5. Explanation of foreign exchange accounting policies, if any

6. Information regarding any indebtedness to the Company or any of its subsidiaries of directors and senior officers

7. Cost of sales breakdown

 III.       EMPLOYEE MATERIALS

1. Agreements

1. Employment agreements (including, but not limited to, contracts with management personnel or entities affiliated with management personnel)

2. Collective bargaining agreements

3. Consulting agreements

4. Employee handbooks, summaries, guidelines and bulletins

5. Schedules of salaried and hourly employees showing their current compensation rates and breaking out employees by:

1. Geographic location

2. Function

3. Age

4. Years with company

5. Union vs. non-union

6. Participation in employee benefit plans

7. Part-time vs. full-time

6. Description of labor disputes, requests for arbitration or mediation, grievance proceedings, etc.

7. Description of negotiations with any unit or group seeking to become the bargaining unit for employees

8. Employee turnover, absentee history and severance policy

9. Description of any union representation elections

2.  Benefit Plans

   1. Any pension, supplemental pension, retirement, post-retirement, stock option, severance, incentive, profit-sharing, executive compensation, bonus and other employee benefit plans (and any related trust agreements and insurance or annuity contracts), including information regarding employer stock held thereunder, a schedule of plan assets, a detailed description of the plan (including structure, etc.) and a list of trustees

   2. Audit and actuarial studies and reports including summary plan descriptions, annual returns and IRS filings, concerning pension and retirement plans and details of any accrued liabilities not reflected therein

   3. List of any asset transfers or other withdrawals, partial wind-ups or contribution holidays with respect to all pension plans

3.  Organizational Information

   	Venture Financing
   Make your project attractive to investors! ► Understand the Venture Financing Chain ► Understand Venture Capital Investors ► Use the Step-by-step Guide to Venture Financing New-generation e-book + 40 Slides ►

   1. Detailed organization chart

   2. List of all directors and officers

   3. Biographies of senior management and any outside directors

   4. Schedule showing number of employees for each year and interim periods

   5. List and description of current operations of each key business unit showing:

1. Business purpose

2. Key manager

3. Key markets served

4. Key facilities

 IV.       CONTINGENT LIABILITIES

1. Litigation

   1. List of all pending or threatened litigation, arbitration, administrative or other proceedings involving the Company, any subsidiary or any joint venture involving the Company or any subsidiary, or any officer or director (including parties, remedies sought and nature of action)

   2. List and description of all pending or threatened government or other investigations involving the Company, any subsidiary or any officer or director

   3. Pleadings and other material documents in material litigation, arbitration and investigations and other proceedings

   4. Consent decrees, judgments, etc., under which there are continuing or contingent obligations

   5. Letters from lawyers to auditors concerning litigation and other legal proceedings

2.  Regulatory Compliance

   1. Description of any violations of governmental laws or regulations

   2. Material reports to governmental agencies

   3. Reports, notices or other correspondence concerning any known or alleged violation of Federal or state antitrust, environmental, nuclear regulatory, public utility or public service or securities laws and regulations

   4. Agreements or commitments with governmental entities or other persons relating to clean-up obligations or other environmental liabilities

   5. Copies of correspondence between Federal or state government agencies and the Company

   6. List of all governmental filings and consents required for a purchase of the stock of the Company

V.        CONTRACTS, AGREEMENTS AND OTHER ARRANGEMENTS

1. Not in the Ordinary Course of Business

   1. Partnership agreements

   2. Joint venture agreements

   3. Contracts relating to material business acquisitions or dispositions (by transfer of capital stock or assets), including any separate tax or environmental agreements

   4. Stand-still agreements

   5. Confidentiality and trade secret agreements

   6. Agreements limiting the ability to compete with any other person or to engage in any line of business

   7. Corporate transactions with management or directors or affiliates

   8. Agreements to provide goods or services at below cost (other than promotional arrangements entered into in the ordinary course of business)

   9. Indemnification agreements for directors and officers

   10. Any other existing or pending material contracts not in the ordinary course of business

   11. Any material correspondence related to the above

   12. Closing record books with respect to each transaction

2.  In the Ordinary Course of Business

   1. Listing and description of key customer contracts

   2. Listing and description of key supply contracts

   3. Material sales representative, marketing, agency or distributorship agreements

   4. Material advertising agreements

   5. Material government contracts

   6. Agreements entered into or expected to be entered into for material capital expenditures

   7. Guarantee agreements

   8. Any agreement which contain change-of-control provisions

   9. Any contracts or agreements similar to the above which are presently under negotiation

   10. Any material correspondence related to the above

Page 1     <<<     Page 2     >>>     Page 3

Venture Financing Make your project attractive to investors! ► Understand the Venture Financing Chain ► Understand Venture Capital Investors ► Use the Step-by-step Guide to Venture Financing New-generation e-book + 40 Slides ►