A term sheet starts the clock on diligence. The legal and commercial reviews get most of the attention, but the finance review is where deals slow down or get repriced, usually because a number in the deck cannot be rebuilt from the books. Preparing the answers before you raise turns diligence into a checklist instead of a scramble.
What investors request
| Area | Typical requests |
|---|---|
| Financial statements | Monthly GAAP-basis P&L, balance sheet and cash flow for 24 to 36 months, plus the current year |
| Revenue | Revenue recognition policy, revenue by customer, deferred revenue roll-forward, top contracts |
| Metrics | ARR bridge, NRR and GRR, churn, CAC payback, burn multiple, with definitions and support |
| Customers | Customer list with ARR, contract terms, concentration, cohort retention |
| Forecast | Operating model with hiring plan, assumptions and runway |
| Cap table | Fully diluted cap table, SAFEs and notes with conversion math, option pool, 409A reports |
| Tax | Federal and state returns, sales tax nexus analysis, payroll tax filings, R&D credit support |
| Corporate | Formation documents, board minutes, Delaware good standing, 83(b) elections |
Issues that cost time or price
- Cash-basis revenue. Annual contracts recognized at invoice overstate growth in billing months and fail an ASC 606 review.
- Metrics that do not tie. ARR in the deck that cannot be reconciled to the billing system or to GAAP revenue.
- Sales tax exposure. Uncollected tax in states where you have nexus becomes a price adjustment or escrow.
- Cap table gaps. Unissued promised equity, missing board approvals, missing 83(b) elections or SAFE conversion math that does not match the documents.
- Commingled entities. Founder or affiliate expenses running through the company.
- Payroll classification. Contractors who should be employees, and remote employees in states where the company never registered.
The pre-raise finance checklist
- Restate to GAAP accrual if you have been on cash, and document the revenue policy.
- Build the ARR bridge from billing data and reconcile it to revenue.
- Run a sales tax nexus study and start remediation.
- Reconcile the cap table to signed documents and the equity platform.
- Confirm 409A reports cover every option grant date.
- Put three years of returns, payroll filings and good-standing certificates in the data room.
- Write a one-page metrics definitions sheet.
After the close
Expect investor reporting requirements (monthly or quarterly financials, an annual budget, sometimes an audit) written into the investment documents. A close process that already produces a board pack every month absorbs that without adding headcount.
What we do
Pre-raise preparation is project work we scope on a call: GAAP restatement, metrics support, nexus study, cap table reconciliation and data room build. After the raise, the monthly finance seat keeps every number diligence-ready.
Quality of earnings
Larger rounds and most acquisitions bring a quality of earnings (QoE) review: an outside team rebuilds revenue, normalizes one-time items, tests cash conversion and reviews working capital. Companies with monthly accrual closes, documented revenue policies and reconciled metrics move through QoE faster and with fewer adjustments.
Building the data room
Organize it in folders that mirror the request list: financial statements, revenue and customers, metrics, forecast, cap table and equity, tax, corporate and legal, people. Name files clearly and date them. A clean data room signals a well-run company before anyone reads a number.
Timeline
Finance diligence typically starts within days of signing the term sheet and runs alongside legal diligence. Anything that requires rebuilding (restating to accrual, a nexus study) takes weeks, which is why the prep is worth doing before you start the process.
Sources
- SEC, Exempt offerings
- IRS, How long should records be kept
- FASB Accounting Standards Codification, Topic 606, Revenue from Contracts with Customers
Questions founders ask
Do Series A investors require audited financials?
Not always, but they expect GAAP-basis monthly financials, a clean revenue schedule and support for every metric in the deck. Many require an audit within a year after closing.
What issues most often slow a Series A close?
Revenue recognized on invoice instead of over time, ARR that does not reconcile to billing, unregistered sales tax exposure, cap table errors and missing 83(b) elections.
