Fundraising? Don’t Pitch Without This Startup Due Diligence Checklist

You’ve got the pitch deck ready, your product demo is completed, and investor meetings are lined up. But before you head into that big fundraising conversation, there’s one crucial step you can’t afford to skip: startup due diligence. Whether you’re raising a seed round or a Series A, being investor-ready means more than having a great idea. It means being compliant, transparent, and audit-proof.

So, what exactly goes into a startup due diligence checklist?

Legal Documentation
Investors will want to see clean and consistent legal documentation. This includes:

1. Certificate of Incorporation
2. Founders’ agreements
3. Shareholder agreements
4. Board resolutions
5. IP assignments and licensing agreements

Ensure your company structure is clear and that any shareholding or ESOP plans are properly documented. Having legal paperwork organised not only builds trust but also prevents hiccups during deal closure.

Financial Compliance
Investors want to ensure the financial health of the company and compliance status to avoid any surprises. With this in mind, please ensure the following to begin with:

1. Hygiene in book-keeping and accounting practices need to be ensured
2. Records and file management is an important aspect for the financial discipline
3. Accurate and updated financial statements (profit/loss, balance sheet) to show a true and fair view
4. Tax returns are filed within defined timelines as per statutory norms including Withholding tax, and GST returns
5. Proper tracking of ongoing Tax assessments and notices are resolved.

Keeping your books clean and transparent is essential to show you’re running a well-managed business.

Corporate Governance
Investor readiness needs a basic governance structure:

1. Board composition and meeting minutes
2. Policies on ethics, anti-bribery, and data security
3. Statutory registers and fundraising compliance calendars

Good governance sets the tone for your startup’s culture. It shows that leadership is organised, decisions are recorded, and risks are mitigated proactively.

Market and Product Validation
Before investing, most VCs will ask:

1. Is there a real market need?
2. What traction does the product have?
3. Are customer testimonials or pilots available?

Numbers talk. Investors want to see adoption rates, retention data, and user feedback. If you’re pre-revenue, show pilot results, waitlists, or letters of intent. Demonstrating product-market fit strengthens your case.

Cap Table Hygiene
A messy cap table is an investor’s nightmare. Ensure:

1. Founders and co-founders have clearly defined stakes
2. Past investments, SAFE notes, and convertible debts are recorded
3. ESOPs are carved out transparently

An updated and easy-to-read cap table reflects professional management, reducing investor concerns.

Regulatory Licences
Depending on your sector, ensure you have the right:

1. FSSAI, SEBI, RBI or industry-specific approvals
2. Environmental or labour clearances
3. Shop and Establishment Act registrations

This is especially important for fintech, food, or healthcare startups. Non-compliance with industry regulations can be a deal-breaker. Always double-check expiry dates and renewal requirements.

IP and Tech Diligence
If tech is your moat, prove it:

1. Patent filings or copyright registrations
2. Source code and version control access
3. Tech stack documentation
4. NDA clauses with vendors and employees

This reassures investors that your intellectual property is secure and can be defended. It’s also worth performing internal audits to ensure that third-party claims do not encumber your intellectual property.

Founders’ Background Checks
More than 70% of investors now run background checks on founding teams. Ensure your digital footprint is professional and that any past litigation or disputes are transparently addressed. Social media presence, press coverage, and even previous employment history may be reviewed.

Data Room Preparation
Having a structured data room shows you’re prepared:

1. Organise files by category: legal, financial, HR, product, etc.
2. Use folders with clear naming conventions
3. Grant access via secure platforms with version control

Investors appreciate a startup that respects their time and attention. A well-managed data room often sets the tone for a positive investor relationship.

Startup due diligence is about building a foundation of trust. Startups that breeze through fundraising compliance are those that treat diligence as an ongoing hygiene practice, not a last-minute scramble.

Think of this checklist as a pre-flight safety check. The better prepared you are, the smoother the journey. So, before you pitch, run through this checklist. Investor readiness is your first real pitch.

For more such insights, follow us on LinkedIn or email us at info@walcon.in.

Cross Charge or ISD  – Are You Using the Right Mechanism?

If you’re running a business with multiple branches or offices across India, assessing the complexities of Goods and Services Tax can often feel like solving a puzzle. One of the most debated questions? Whether to opt for GST cross charge or the Input Service Distributor (ISD) mechanism. Both serve the purpose of distributing input tax credit, but their application and implications are quite different.

So, how do you determine which mechanism best suits your business?

Cross Charge vs ISD Under GST: Essential Concepts

ISD under GST refers to a mechanism where a head office (HO) distributes the input tax credit (ITC) it receives on standard input services to its different units or branches. These units must be under the same PAN but located in other states. The HO issues an ISD invoice to allocate the ITC proportionately.

GST cross charge, on the other hand, comes into play when the HO or any unit provides a service (even if not invoiced) to another unit of the same company. In such cases, the supplying unit must raise a tax invoice and pay GST on the value of the service that has been transferred.

When Should You Use ISD?

Use ISD if:

Your HO receives invoices for services like audit, consulting, advertising, or HR support that are used by multiple branches.
You want to distribute ITC without raising tax invoices.
You want to simplify compliance by filing only the ISD return (GSTR-6).

According to the CBIC guidelines, ISD is purely for credit distribution and not for the supply of services.

When Is Cross Charge More Appropriate?

Use GST cross charge if:

There’s an actual or deemed supply of services between branches, such as IT support provided by the HO to another unit.
Employees at the HO work for another branch, and their salary cost is recharged.
The branch receiving the service is located in a different state, triggering an interstate supply.

The cross charge involves tax invoicing and can be more documentation-intensive. However, it ensures proper valuation and taxability under the GST law.

Key Differences: Input Service Distributor vs Cross Charge

Common Mistakes to Avoid

• Using ISD for cross charging: This can lead to compliance errors and penalties.
• Wrong valuation: Under cross charge, value must be determined per Rule 28 of the CGST Rules.
• Not registering as ISD: If using the ISD mechanism, registration as ISD is mandatory.

Which Should You Choose?

The answer depends on the nature of the transaction. If it’s about sharing credit on standard input services, go for ISD. If it’s about the provision of internal services between branches, cross charge is the way.

Many businesses use a hybrid approach, employing ISD for credits and cross charge for internal service supply. But this must be clearly documented and aligned with your GST filings.

Choosing between GST cross charge and ISD under GST is not just a compliance issue but a strategic decision. Incorrect classification can result in mismatched credits, penalties, and audits.

When in doubt, consult a tax professional to help evaluate your business activities and design the right approach. Solving the GST puzzle now can save you a lot of trouble later.

Startup Funding Evolution Post-COVID – Focus Shift from Revenue to Profit Maximisation

The way startups raise and manage capital has changed significantly since the COVID-19 pandemic. Before the pandemic, fast revenue growth was the main priority. Today, profitability is what investors want to see. This new approach is shaping how founders pitch, plan, and scale their companies.

From Boom to Reset: The Funding Shift in Numbers

Here’s how India’s startup funding evolved in the past few years:

What does this tell us?
After a dramatic 2021 high, investor behaviour shifted fast. They began pulling back from high-burn, fast-growth models and leaning into ventures that proved they could turn a profit.

What’s Changed for Founders?

Startups today are adopting leaner, smarter, and more strategic approaches. Here’s how:

• Tighter Operations: Every rupee counts. Startups are cutting non-essentials and doubling down on what drives profit.
• Customer Loyalty > Fast Expansion: Rather than explosive growth, startups are focusing on retaining paying users.
• Profit Roadmaps: Pitch decks now prioritise how (and when) the company will become profitable, not just flashy user growth.

Investor Mindset: What’s Hot, What’s Not
The post-COVID investor is more analytical, risk-averse, and focused on unit economics. Gone are the days of free-flowing capital based on vanity metrics like user sign-ups or app downloads. Today’s funding decisions are backed by hard questions: How soon can this startup break even? Is the market ready for the solution? Can the team deliver profitability without burning through cash?

Here’s how investor priorities have evolved:

Key Insight:
Investors aren’t just looking for the next unicorn, they want the next sustainable business. Startups that can build resilient models with strong customer retention, steady revenue streams, and clear monetisation strategies are now in the spotlight.

Which Sectors Are Seeing the Most Change?
Different sectors are experiencing varied impacts due to the shift in investor focus. SaaS and fintech sectors, previously favoured for their scalability, are now under scrutiny for their profitability timelines. Conversely, sectors such as health tech and Greentech are gaining traction due to their potential for sustainable revenue and alignment with global priorities.

The funding patterns corroborate these trends. The significant drop from $38 billion in 2021 to over $10 billion in 2023, followed by a recovery to $14.44 billion in 2024, indicates a reallocation of capital towards sectors demonstrating resilience and profitability.

Startup Funding Trends to Watch

Investor expectations have become more defined in recent years. Key trends shaping funding decisions now include:

• Early Focus on Monetisation: Startups are expected to show revenue models from the outset.
• Preference for Lower Burn: Companies that can break even quickly are favoured, even if they grow more slowly.
• Smaller, Milestone-Based Rounds: Instead of mega-rounds, funding is more conservative and tied to specific targets.
• Greater Due Diligence: Investors conduct a deeper analysis of unit economics and sustainability before backing a startup.

Post-COVID, Indian startups are recalibrating. The market rewards discipline over dazzle. Founders who can balance innovation with a path to profit will be the ones securing deals, scaling sensibly, and staying around for the long haul.

In the new era of startup funding, slow and steady doesn’t just win the race, it’s the only way to run it.