The Complete Due Diligence Checklist for Seed-Stage Investors (2025 Edition)
A comprehensive guide to seed-stage due diligence. Learn exactly what to check, what questions to ask, and what red flags to watch for when conducting seed-stage investments.
Diliflow Team
Investment Research
Seed-stage due diligence is different from later-stage investing. Companies don't have extensive financial history. Product might be MVP-level. Team is small.
Yet you're being asked to bet $100K-$500K on whether this company will exist in 3 years—and ideally return 10-50x your investment.
What should you actually check? What matters at this stage vs. what's premature?
This guide breaks down exactly what to evaluate, what questions to ask, and what red flags to watch for when conducting seed-stage due diligence.
Phase 1: Initial Screening (30-60 Minutes)
Before diving deep, do a quick assessment to determine if the opportunity warrants full diligence.
Founder Evaluation
What to check:
- Domain expertise: Does the founder deeply understand this problem/market?
- Previous experience: Have they started companies before? Relevant industry background?
- Commitment level: Are they full-time? Have they been working on this for 6+ months?
- Communication quality: Do they explain complex ideas clearly? Are they coachable?
Key questions to ask:
- "Why are you the right person to solve this problem?"
- "What did you do before starting this company?"
- "What's the most important thing you've learned in the last 3 months?"
Red flags:
- Founder has no connection to the problem they're solving
- Currently employed full-time elsewhere
- Can't articulate what customers actually want
- Defensive when asked about challenges
Market Opportunity
What to check:
- Market size: Is the TAM realistically $1B+? (use bottom-up calculation, not top-down)
- Timing: Why is now the right time for this solution?
- Competition: Who else is solving this? Why haven't they won yet?
- Market dynamics: Is this a growing or shrinking market?
Key questions:
- "How did you calculate market size?"
- "What has changed recently that makes this possible now?"
- "Who are your direct and indirect competitors?"
Red flags:
- Market size based on questionable assumptions ("if we just get 1% of...")
- Solution looking for a problem
- 10+ well-funded competitors already in the space
- Shrinking or stagnant market dynamics
Product/Solution Fit
What to check:
- Problem clarity: Do you understand the problem within 2 minutes?
- Solution simplicity: Can the founder explain the solution in 30 seconds?
- Unique insight: What non-obvious insight led to this approach?
- Stage-appropriate traction: For seed, early customer interest or MVP usage is enough
Key questions:
- "Show me the product" (actual demo, not slides)
- "What do customers say is the most valuable part?"
- "What alternatives are customers using today?"
Red flags:
- Can't explain the problem clearly
- Solution is overly complex or requires major behavior change
- No evidence anyone wants this (not even friends/family)
- Product is just a slide deck with no working version
Decision point: If the opportunity passes initial screening, move to full diligence. If not, politely pass and save both parties time.
Phase 2: Deep Due Diligence (4-8 Hours)
Once you've determined the opportunity is worth pursuing, dig deeper.
Business Model Validation
What to review:
- Revenue model: How will they make money? Is it credible?
- Pricing strategy: What will customers pay? Based on what?
- Unit economics: What does customer acquisition and retention look like?
- Path to scale: How does this business get from $0 to $10M+ ARR?
Documents to request:
- Financial model (even if it's early-stage assumptions)
- Pricing analysis or customer feedback on willingness to pay
- Early revenue (if any) or pilot results
Key questions:
- "Walk me through your unit economics assumptions"
- "What's your CAC payback period target?"
- "When do you expect to reach cash-flow breakeven?"
Red flags:
- No clear monetization strategy ("we'll figure it out later")
- Unit economics that don't work even at scale
- Unrealistic assumptions (99% retention, $0 CAC)
- Business model requires massive scale before any revenue
Customer Validation
What to check:
- Real customers: Are there people paying or committed to paying?
- Problem urgency: Are customers actively looking for a solution?
- Willingness to pay: Have you validated pricing with real customers?
- Early traction: Letters of intent, pilot customers, waitlist, pre-orders?
Evidence to look for:
- Customer interviews or testimonials
- Pilot program results
- Signed LOIs or MOUs
- Early revenue (even if small)
- Active users or engaged waitlist
Key questions:
- "Can I speak to 2-3 of your customers/pilot users?"
- "What problem were they trying to solve before finding you?"
- "What's your current conversion rate from demo to customer?"
Red flags:
- Zero customer conversations
- "Customers" are friends/family being polite
- No one has shown willingness to pay
- Every potential customer "loves it" but no one commits
Team Assessment
What to evaluate:
- Complementary skills: Does the team cover product, technical, and business?
- Track record: Have team members built or shipped things before?
- Full-time commitment: Is the entire team all-in?
- Team dynamics: Do they work well together? How do they handle disagreement?
Documents to request:
- Team bios and LinkedIn profiles
- Cap table showing founder equity splits
- Any advisory board or early employees
Key questions:
- "How did the founding team meet?"
- "How do you make decisions when you disagree?"
- "What key hires do you need in the next 12 months?"
- "Have you worked together before?"
Red flags:
- Critical skills missing (technical founder with no technical co-founder)
- Equity split seems unfair or contentious
- Founders can't articulate each other's strengths
- History of failed partnerships or team dysfunction
Competitive Landscape
What to analyze:
- Direct competitors: Who else is building this exact solution?
- Indirect competitors: What alternatives exist (including status quo)?
- Competitive moat: What makes this defensible over time?
- Market positioning: Why will customers choose this solution?
Research to conduct:
- Search Crunchbase, AngelList, Product Hunt for similar companies
- Google search for the problem + solution keywords
- Check LinkedIn for employees of competitor companies
- Review competitors' websites, pricing, and customer reviews
Key questions:
- "What do customers use today?"
- "Why haven't incumbents solved this?"
- "What would prevent a competitor from copying this in 6 months?"
Red flags:
- Founder unaware of obvious competitors
- No clear differentiation from existing solutions
- Competitor is well-funded and moving fast
- Defensibility relies only on "we'll execute better"
Financials & Use of Funds
What to review:
- Current burn rate: How much are they spending per month?
- Runway: How long until they run out of money?
- Use of funds: What will this money be spent on?
- Milestones: What will they achieve before needing to raise again?
Documents to request:
- Cap table
- Current P&L (even if minimal)
- Detailed use of funds breakdown
- 12-18 month financial projections
Key questions:
- "What's your monthly burn rate?"
- "How much runway do you have currently?"
- "What specific milestones will this raise enable?"
- "When will you need to raise again?"
Red flags:
- Can't articulate burn rate or runway
- Unrealistic projections (hockey stick with no basis)
- Use of funds is vague ("growth and product development")
- Raising too little to reach meaningful milestones
Legal & Structural
What to verify:
- Company structure: Incorporated correctly? (Delaware C-corp for VC-backed)
- Cap table cleanliness: No messy prior rounds or contentious investors?
- IP ownership: Does the company own its IP? Any disputes?
- Compliance: Any regulatory issues or legal risks?
Documents to request:
- Certificate of incorporation
- Cap table (fully diluted)
- Previous funding documents (SAFE, convertible notes, priced rounds)
- IP assignment agreements
- Any material contracts
Key questions:
- "Who owns the IP for this technology?"
- "Are there any legal disputes or pending litigation?"
- "Do all founders have IP assignment agreements?"
- "Are there any unusual investor rights from previous rounds?"
Red flags:
- Incorporated as LLC or S-corp (harder to invest in)
- IP owned by founder personally, not company
- Previous investors with problematic rights (super pro-rata, board control)
- Ongoing legal disputes
Phase 3: Reference Checks (2-3 Hours)
Don't skip this. References often reveal information you won't find in documents.
Customer References
Who to contact:
- 2-3 current customers or pilot users
- At least one who churned or chose not to proceed (if applicable)
What to ask:
- "What problem were you trying to solve?"
- "How has this solution worked for you?"
- "What concerns did you have before committing?"
- "How does this compare to alternatives you considered?"
Founder References
Who to contact:
- Previous co-workers or managers
- Co-founders from previous ventures
- Professors or mentors (for first-time founders)
What to ask:
- "What's it like to work with [founder]?"
- "How do they handle stress or setbacks?"
- "What are their greatest strengths and weaknesses?"
- "Would you invest in or work for this person again?"
Market Expert References
Who to contact:
- Industry experts in the target market
- Other founders in adjacent spaces
- Potential customers (if you have relevant connections)
What to ask:
- "Is this a real problem in your industry?"
- "Would you pay for this solution?"
- "What's missing in the current market?"
- "Who are the credible players in this space?"
Phase 4: Final Decision Framework (1-2 Hours)
Synthesize everything into a clear investment decision.
Scoring Framework
| Category | Weight | Score | Weighted Score |
|---|---|---|---|
| Founder Quality | 30% | __/10 | __ |
| Market Opportunity | 25% | __/10 | __ |
| Product/Solution | 20% | __/10 | __ |
| Traction/Validation | 15% | __/10 | __ |
| Business Model | 10% | __/10 | __ |
| Total | 100% | __/10 |
Decision threshold:
- 8.0+: Strong yes, move quickly
- 6.5-7.9: Qualified yes, negotiate terms
- 5.0-6.4: Maybe, need more information
- <5.0: Pass
Red Flag Assessment
Count the number of red flags identified:
- 0-1: Proceed
- 2-3: Proceed with caution, address in term sheet
- 4+: Pass
Gut Check Questions
Before finalizing:
- Would I want to work with this founder for 5-10 years?
- Do I believe this team can build what they're describing?
- If I didn't invest, would I regret missing this opportunity?
- Can I add meaningful value beyond capital?
Common Seed-Stage Mistakes to Avoid
Expecting Series A-level metrics
Seed stage won't have perfect unit economics or significant revenue. That's okay.
Over-indexing on market size
A $10B TAM doesn't matter if the team can't capture 0.1% of it.
Skipping reference checks
This is where you learn what the founder won't tell you.
Ignoring team dynamics
Co-founder conflicts kill more startups than bad ideas.
Requiring too much traction
If they had product-market fit, they'd be raising Series A, not seed.
Due Diligence Timeline
For seed-stage deals, aim to complete diligence in 2-3 weeks:
Note: Longer than 4 weeks and you risk losing the deal to faster investors.
Tools to Speed Up Your Diligence Process
Manual due diligence for every seed deal is time-consuming. Smart investors use tools to automate repetitive tasks:
Document management
- Automated document organization and version control
- AI-powered data extraction from pitch decks
- Searchable repository of all deal documents
Founder research
- Automated LinkedIn profile analysis
- News monitoring and background checks
- Social media presence evaluation
Market research
- Competitor tracking and analysis
- Market sizing validation
- Industry trend monitoring
Team collaboration
- Shared evaluation frameworks
- Real-time commenting and scoring
- Deal pipeline visibility
Using the right tools can cut your diligence time by 50-70% while improving consistency and thoroughness.
Conclusion: Diligence Is Your Competitive Advantage
As a seed-stage investor, your edge isn't just picking the right companies—it's doing thorough, efficient diligence that helps you:
- Move fast when you find exceptional opportunities
- Avoid costly mistakes by catching red flags early
- Build conviction so you can support founders through challenges
- Learn patterns that improve your investment thesis over time
This checklist gives you a repeatable framework. But remember: every deal is unique. Use this as your foundation, then adapt based on the specific opportunity.
The best investors aren't the ones who do the most diligence. They're the ones who do the right diligence efficiently.
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