What an Acquirer's Diligence Will Dig Up, and How to Be Ready

You signed a letter of intent. The price looks great. Then the buyer’s lawyers send a diligence request list with 140 items on it, and the deal you thought was done becomes a scramble through four years of contracts, board minutes, and equity grants you barely remember signing.

Most sell-side deals lose value in diligence, not in the negotiation. The number on the term sheet is an offer. What survives to closing depends on what the buyer finds when they look under the hood. The good news: almost everything they look for, you can fix or organize before the process starts.

Diligence is a search for reasons to pay less

A buyer runs diligence to confirm they are buying what they think they are buying. When they find a gap, they do one of three things: lower the price, hold money back in escrow, or ask you to indemnify them for the risk. Each one comes out of your pocket.

So the goal before a sale is simple. Remove the reasons. Every issue you clean up in advance is one the buyer never gets to price against you.

Your cap table is the first thing they read

Investors and acquirers read a cap table the way an auditor reads a ledger. They want to know who owns what, that every share and option was properly authorized, and that nobody can show up after closing claiming they were promised equity.

The common problems are boring and expensive: option grants approved by email instead of board consent, a co-founder who left without signing a separation and still holds unvested shares, a SAFE from 2022 that nobody modeled into the conversion. Find these now. A clean cap table, with signed consents behind every grant, is one of the cheapest ways to protect your price.

Contracts: read your own assignment clauses

Your customer and vendor agreements are the revenue the buyer is paying for. They will read the ones that matter, and they will look hard at two things.

First, change-of-control and assignment terms. Some contracts let the other side walk away, or demand a renegotiation, if your company is acquired. If your three largest customers can all leave on a sale, that is a problem the buyer will want to solve before they wire the money.

Second, the obligations you forgot you made. Exclusivity grants, most-favored-pricing promises, uncapped indemnities, auto-renewals on bad terms. Pull your key contracts and read them as if you were the buyer. The surprises you find are the ones you want to handle on your timeline.

Employment and contractor classification

Buyers check how you built your team because misclassification follows the company. If you paid engineers as independent contractors who looked and worked like employees, the back taxes and penalties become the buyer’s problem, so they make it yours through the price.

Confirm that employees signed offer letters and invention-assignment agreements, that contractors are genuinely contractors, and that anyone who touched your code actually assigned their work to the company. A startup that cannot prove it owns its own product is a startup with a discount built in.

Regulatory gaps in healthcare and SaaS

For companies in healthcare or handling regulated data, this is where deals get complicated. A buyer in digital health will want to see your BAAs, your HIPAA program, and whether your corporate structure holds up under the Corporate Practice of Medicine rules. A SaaS buyer will want your data processing agreements and a clear story on privacy compliance.

These are not items you create in a weekend during diligence. Build the structure correctly while you operate, and the diligence answer is a folder you already have rather than a fire drill.

Fix it now, not in the data room

The pattern repeats across every deal we work on. The founders who prepare early keep their price. The founders who wait until the buyer is in the data room spend the diligence period explaining problems instead of closing.

A practical sequence, six to twelve months ahead of a process:

• Reconstruct the cap table and get a signed consent behind every grant
• Read your top fifteen contracts for assignment, change-of-control, and unusual obligations
• Confirm employee and contractor paperwork, including IP assignment
• Close any regulatory or compliance gaps that a buyer in your sector will check
• Organize it all into a clean data room before you need one

None of this requires a banker or a signed LOI. It requires a few weeks of work now to protect a number you will care about a great deal later.

If you are thinking about a sale in the next year or two, the best time to get the company diligence-ready is before a buyer asks. That is work we do with founders well ahead of a process, so the deal moves at your pace when it comes.