It is never too early to prepare for the company’s next investment round. Experience shows that the longest and most exhausting part of an investment is usually the due diligence process, but it doesn’t have to be that way.
Here are two tasks which are recommended to start with as soon as possible in order to make it easier for yourself in the future:
- Capitalization Table – A table (usually in an Excel file) which specifies the holdings of the company’s shareholders by amount and type of shares, both on an as-issued basis (i.e., shares actually issued) and on a fully-diluted basis (i.e., assuming that all options of any kind in the company have been exercised into shares). The company’s capitalization table is one of the most important issues in the investor’s due diligence process – investors want to be certain what will be the percentage of their holdings in the company after the investment, and therefore it is very important to maintain a detailed and precise capitalization table which includes a specification of the shareholders and their holdings and a specification of the options promised or granted to employees or consultants of the company.
- Data Room – It is recommended to maintain an up-to-date data room (or at least organized folders on your computer which can be uploaded to a data room when needed) which contains all the materials that your next investor may require in order to examine the company in the framework of the due diligence. Preparation of the data room in advance will make the due diligence process easier down the road and can also shorten it since there will be no need to locate old documents. Such early preparation will also give potential investors the impression of an organized and well-maintained company, which can increase the chances of an actual investment.