What due diligence (selskapsgjennomgang) is for
Due diligence checks that what you have already said is true, and that nothing sits behind it that changes the case for investing. It is solely a matter of getting the information you have provided verified. The questions are therefore predictable, and a company with its papers in order can move through the process in weeks.
Founders tend to fear only the decision. Plan for all of what comes out of it:
- The decision. Invest or do not invest.
- Conditions. Things that must be true, or done, before the money moves.
- Risk allocation. What the investors could not verify to their satisfaction is shifted onto you in the form of warranties and guarantees.
The process is thorough, and can look like distrust. Once the money is in the company there is very little chance of getting it back out, so everything an investor does before signing is the substitute for a remedy afterwards. Expect anything material to be revealed anyway, and choose the moment yourself.
The questions are known in advance
Diligence runs on three tracks, in parallel and often with different people on each. Knowing which track a question comes from tells you which document will settle it.
| Track | What it verifies, and from what |
|---|---|
| Legal | That the company owns what it claims, that the shares are what the cap table says, and that no contract or obligation blows up on a change of ownership. Read from the articles of association, share register, board and general meeting minutes, shareholders’ agreements, convertible instruments, employment contracts, intellectual-property assignments, customer and supplier contracts. |
| Financial | That the numbers reconcile and that the cash runway is what you said. Read from the filed annual accounts, current-month bank statement, cash position and burn, tax and VAT position, and the tax certificate (skatteattest, RF-1316). |
| Business | Whether the plan is credible and what would have to be true for it to work. Read from the deck, the model, the pipeline, and mostly conversation with you. |
A large part of your company is public and has been read before anyone asks you a question. Assume all of it is on the table at the first call.
- The company certificate, the articles, the registered roles and the share capital, in the Register of Business Enterprises.
- The filed annual accounts, in the accounts register.
- Shareholder data, in Skatteetaten’s shareholder register.
- Beneficial-owner registrations, and bankruptcy and role histories.
- Your own share register. Since aksjeloven § 4-6 anyone may demand access to it, and since 1 February 2025 the company must in the ordinary case send an electronic copy by e-mail within three business days, free of charge.
Only a short list of documents lives with you: minutes, shareholders’ agreements, option and convertible agreements, employment contracts and commercial contracts. They are the real content of the data room (datarom), and every awkward finding comes from them.
The four findings investors expect in a founder company
The same four categories recur, and every experienced investor arrives with a question bank for each. Arriving clean on all four is the cheapest thing you can do for price and speed.
| Finding | What it looks like in practice |
|---|---|
| Share-related surprises | Consent or pre-emption requirements in an existing shareholders’ agreement (aksjonæravtale). An earlier round done at a lower price. Convertible-loan claims agreed by e-mail and never documented. Third-party rights triggered by the new investment. |
| Missing formalities | No written employment contracts. Board and general meeting decisions never minuted. Annual accounts filed late or not at all. |
| Founder dependence | The company is one or two people, and it is unclear where their work ends and the company’s assets begin. |
| Fragile contracts | A “big customer” that is one delivery. Letters of intent counted as pipeline. A single supplier with no written agreement. Change-of-control clauses that bite when ownership shifts. |
Each has a fix you can apply before anyone asks. The fix is always cheaper than the warranty you would otherwise give for it.
- Shares. Reconcile the share register against the cap table, share by share. Put every outstanding convertible or option claim in a signed document, or settle it. Read your own shareholders’ agreement for what this round requires of the existing owners.
- Formalities. Written contracts are mandatory in every employment relationship, at the latest seven days after work starts, so this one is not negotiable. Minute decisions as they are taken. The annual accounts are due to the accounts register by 31 July, and late filing runs an escalating penalty that currently reaches close to NOK 70,000, for which board members become personally liable if the company does not pay on demand.
- Founder dependence. Norwegian law does not transfer employee-created intellectual property to the company by default. Patentable inventions can be claimed under the Employee Inventions Act and copyright in computer programs passes under the Copyright Act § 71, but designs, know-how, content and anything created before incorporation need an assignment. Put assignment clauses in every employment and contractor agreement, and assign pre-incorporation work in writing.
- Contracts. Say which revenue is recurring and which is not, before the question is asked. Get the key relationships into signed agreements. Read every material contract for change-of-control wording and flag what you find.
Business diligence is a conversation about the future
Legal and financial diligence read documents. Business diligence cannot, because at early stage there are almost no hard facts to read. The method developed by Christian Wig of Pivotic treats a business due diligence of a startup as an examination of beliefs about the future, worked through in this order:
- The business model.
- Strengths and weaknesses.
- Risk.
- Trends.
- A prioritised set of issues and opportunities.
- The strategic options, and the assumptions underneath them.
It is run as workshops with the founders inside the diligence process, with feedback rounds, and the output is a shared view of what has to be true for the company to work.
Use the workshops. Founders who treat them as an examination to be survived get a worse result, because the same analysis is the one you will run against your own plan for the next two years.
How you engage is itself under assessment. The team questions investors work through at this stage include, in plain words, whether the founders are coachable. Defensiveness in a workshop is data. So is a founder who changes their mind when shown something they had not considered, and says so.
How to answer: fast, written, honest about the bad parts
Speed in diligence is mostly organisation on your side. These habits shorten the process more than anything the investors do.
- One owner. One person runs the process, holds the document list and answers everything. Diligence answered by whoever happens to be free produces contradictions, and contradictions produce more questions.
- Written, and logged. Answer follow-up questions in writing, keep a numbered log of question, answer and date, and re-use it. Several investors will ask the same twenty questions.
- Disclose before discovery. A problem you raise is a problem being priced. The same problem found in week three is a problem plus a question about what else you did not mention.
- Do not improvise. “I will check and come back to you today” is a complete answer. A confident wrong answer discovered later is worse than an admission of not knowing.
- Keep the room current. Accounts and filings are as-filed, but the bank statement, cash position and burn rate are as-of-now. Stale financials read as carelessness about the thing investors care about most.
Where you are in the raise changes how much of this you set up in advance. The habits are the same; the order you build them in is not.
- First raise. Build the data room before the first investor meeting, starting from the public-record list above and the four findings. Most of what you will be asked is already knowable, and a room that is ready reads as a company that is.
- Second raise. Reuse the question log from the last round and update it. The new investors will ask the same questions, and the old answers show them what changed.
- With a lead. The lead runs diligence and the others rely on it. Agree with the lead at the start that findings and answers are shared with the whole group, so you answer each question once.
- Without a lead. Several investors will run their own process in parallel. One room, one log and one owner are the only way to keep the answers consistent between them.
Expect checks on people as well as papers. References are ordinarily taken with your knowledge, and there is no reason to resist them.
Beyond that the Norwegian framework is narrower than founders sometimes assume. A criminal-records certificate (politiattest) may only be demanded where a statute authorises it, so no investor can require one from you at will.
A personal credit check requires a legitimate need and leaves you with a duplicate notice (gjenpartsbrev), so you will know it happened. Public-register checks on roles, previous companies and bankruptcies are open to anybody.
Findings become terms
Most findings do not kill deals. They move into the documents, which is where they start to cost money, by one of these routes:
- The finding changes the decision.
- It becomes a condition to be cleared before completion: a contract signed, an assignment executed, a liability settled.
- It becomes risk shifted to you, through the warranty catalogue in the investment agreement.
The catalogue at angel stage is short and consistent. Read it before diligence starts, because it tells you what will be checked:
- The company owns its intellectual property, and no third party has a claim on it.
- Taxes and value-added tax are paid.
- Material contracts are valid.
- No dispute is pending or threatened.
- Everything material given in diligence is accurate, and nothing material has been withheld. This one catches whatever the specific ones miss.
Who gives them. In Norwegian angel practice founders are commonly asked to warrant personally, which puts private assets behind the statements. The remedy on breach is either a personal claim or, in the mechanism Norwegian practice generally prefers, compensation shares: the company issues additional shares to the investors, and the founders bear the breach through dilution.
The practice is not universal. The UK model documents now make the company the sole warrantor and do not ask founders to warrant at all, which makes pushing back on unlimited personal exposure a normal negotiating position.
What limits them. A cap on total exposure and a claim period after completion belong on the face of the agreement. Both are settled by negotiation, since the law fixes neither. Argue them on the facts of the round, and put them in front of the adviser reviewing the agreement. What you disclose is priced; what you fail to disclose you end up warranting.
Running your side of the timeline
Where diligence sits in the sequence decides what you are exposed to while it runs. Two sequences are in use.
- Term sheet first. A term sheet or letter of intent is signed stating price and terms, expressly non-binding except for the process clauses, and diligence then verifies before anything binding is signed. It costs you exclusivity time without a committed deal, and leaves price open to reopening on findings.
- Agreement first. The investment agreement is signed and diligence becomes a condition of completion. It gives you deal certainty, but risks unwinding something already signed.
Neither is comfortable. The usual sequence is the first: term sheet, then diligence, then the shareholders’ agreement and investment agreement, then signing.
On duration, a typical angel diligence runs to about four meetings, two with the founders and two among the investors. That is weeks, and it is a reasonable thing to hold an investor to.
Exclusivity is where founders quietly give away their alternatives. Expect to be asked for it: PwC found an exclusivity period specified in 79 per cent of the 187 UK term sheets it surveyed.
The long periods are acquisition practice and have no place in an early-stage financing. Keep it to weeks, and ask for automatic termination if the investor stops progressing.
Keep the rest of the round warm during those weeks. An investor who has gone quiet in week two has usually just been busy, and restarting a conversation you let lapse takes longer than maintaining it.
When the process stalls, ask directly what is outstanding and who is waiting on whom. Stalls are usually one unanswered question or one absent document, and you are the only person in the process with an interest in finding out which.