I’ve been through the fundraising rodeo more times than I can count. I’ve raised money for my own companies, and I’ve invested in over 200 startups, including some you might have heard of like Anthropic and OpenAI. You’d think I’d have seen it all. I’ve seen founders cry, I’ve seen deals fall apart at the last minute, I’ve seen VCs act like saints and sinners.
But nothing—and I mean nothing—prepared me for the soul-crushing, mind-numbing, deal-on-the-brink-of-collapse experience of legal due diligence for our Series A round for RemoteTeam.
You think the pitch is the hard part? The endless coffees, the “no”s, the refining of your story until it’s a diamond? That’s the fun part. That’s the dance. It’s a game of persuasion and vision. You’re selling a dream, and you’re the star of the show.
The legal due diligence? That’s the back-alley brawl you didn’t know you signed up for. It’s a street fight with a bunch of lawyers who are paid to find every single crack in your armor. And they are very, very good at their jobs.
We had the term sheet. A beautiful, crisp, $10 million term sheet from a top-tier Silicon Valley VC. We were celebrating. High-fives all around. The money was practically in the bank. Or so we thought. We had already started making plans. We were going to hire more engineers, expand our marketing, and finally build out that new feature our customers had been begging for. The future was bright, and we were on top of the world.
Then the email landed in my inbox. The subject line was innocuous enough: “Series A Due Diligence Request List.” My heart sank faster than a lead balloon. I remember staring at that subject line for a good five minutes, a cold dread washing over me. I knew what was coming.
I opened the attachment. It was a multi-tabbed Excel spreadsheet with hundreds of items. Each one a potential landmine. It was a work of art, in a terrifying, bureaucratic kind of way. The formatting was perfect, the categories were meticulously organized, and the sheer volume of requests was breathtaking.
The Checklist from Hell
I wish I could say I was exaggerating. But this list was a monster. It covered everything from our corporate structure to our customer contracts to our employee agreements. It was a full-body cavity search of our company, and the lawyers were the ones with the rubber gloves. They wanted to know everything. And I mean everything.
Here’s a more detailed taste of what we were up against:
- Corporate Records: Every board minute, every shareholder resolution, every stock option grant. They wanted to see the paper trail for every decision we’d ever made. And not just the final, signed documents. They wanted to see the drafts. The email chains where we debated the terms. The notes from the meetings. It was a level of scrutiny that felt almost personal.
- Intellectual Property: A complete list of all our patents, trademarks, and copyrights. And a detailed explanation of how we developed our proprietary technology, with proof that we owned it free and clear. This meant digging up old employment agreements, contractor agreements, and even email exchanges with freelancers. We had to prove that every line of code, every design, every piece of content was ours. It was a huge undertaking.
- Customer Contracts: Every single customer agreement. They wanted to know our revenue, our churn, our pricing—and they wanted to see the contracts to prove it. They wanted to know if we had any non-standard terms, any side letters, any verbal agreements. They were looking for any potential liabilities, any reason to believe that our revenue was not as solid as we claimed.
- Employee and Contractor Agreements: Every offer letter, every consulting agreement, every NDA. They wanted to make sure we had properly classified our employees and that we owned all the IP created by our contractors. This was a huge area of concern for them, especially since we were a remote-first company with people all over the world. They were worried about misclassification risk, and they wanted us to prove that we were in compliance with the labor laws of every country where we had a team member.
- Financial Statements: Audited financials for the past three years. We were a startup. We didn’t have audited financials. We had a Quickbooks account and a part-time bookkeeper. The thought of having to go back and audit our books for the past three years was enough to give me a panic attack. It would have been incredibly expensive and time-consuming, and we were on a tight deadline.
And that was just the beginning. The list went on and on. It was overwhelming. It was terrifying. There were requests for our insurance policies, our marketing materials, our privacy policy, our terms of service, our cap table, our debt agreements, our litigation history... It was a never-ending list of demands.
The Skeletons in Our Closet
Every startup has skeletons in its closet. We were no different. We had moved fast and broken things. We had prioritized growth over paperwork. We had made some mistakes.
We were a remote-first company from day one, long before it was cool. We had employees and contractors all over the world. And we hadn’t always been as diligent as we should have been with our paperwork. We were a small team, and we were focused on building a product and getting customers. We didn’t have a legal department. We didn’t have an HR department. We were doing everything ourselves.
We had a few contractors who had started as hourly workers and then transitioned to full-time employees. We hadn’t updated their agreements. We had a few early employees who had been granted stock options with handshake agreements. We hadn’t papered the grants. We had a few verbal agreements with customers that were not reflected in their contracts. We had a few open-source libraries that we were using without fully understanding the licensing terms.
These were small, honest mistakes. But in the cold, hard light of due diligence, they looked like major red flags. They were ammunition for the lawyers. They were reasons to question our competence, our integrity, and our valuation.
The VC’s lawyers were ruthless. They questioned everything. They nitpicked every document. They made us feel like we were on trial. Every email was a cross-examination. Every phone call was an interrogation. They would ask the same question in five different ways, trying to catch us in a contradiction. It was a psychological game, and they were masters of it.
There were days when I thought the deal was going to fall apart. The back-and-forth was endless. The legal bills were piling up. The stress was unbearable. I wasn’t sleeping. I was barely eating. I was snapping at my co-founders. The joy of building a company was gone, replaced by a constant state of anxiety and fear.
How We Survived
So how did we get through it? How did we save the deal? It wasn’t easy. There were a few moments when I was ready to throw in the towel. But we pulled together as a team, and we found a way to get it done.
It came down to three things:
- Radical Transparency: We decided to be completely transparent with the VCs. We owned our mistakes. We created a “disclosure schedule” where we listed every single issue we had found, no matter how small. We explained what had happened, why it had happened, and what we were doing to fix it. We didn’t try to hide anything. We didn’t try to spin the story. We just laid it all out on the table. It was a risky move, but it was the right one. It built trust with the VCs, and it showed them that we were honest and that we were committed to doing things the right way.
- Military-Grade Organization: We created a virtual data room and uploaded every document the lawyers requested. We created a master spreadsheet to track the status of every item on the checklist. We assigned a point person for each category of requests. We had daily stand-up meetings to review our progress and identify any roadblocks. We were organized, we were responsive, and we were professional. We treated it like a military operation. We were at war with the due diligence checklist, and we were determined to win.
- Unwavering Grit: We just refused to give up. We worked around the clock for three weeks. We answered every question, we addressed every concern, and we did whatever it took to get the deal done. We pulled all-nighters. We canceled plans with our families. We lived and breathed due to diligence. It was a brutal, grueling, and exhausting process. But we knew that our company’s future was on the line, and we were not going to let it slip away.
In the end, we got the deal done. The money hit our bank account, and we were able to continue building our company. But the experience changed me. It made me a better entrepreneur. It made me a better leader. And it gave me a newfound respect for the importance of getting your legal house in order.
My Advice to Founders
I learned a lot from that experience. And I want to share some of that wisdom with you. I don’t want you to make the same mistakes I did. I want you to be prepared for the fight of your life.
If you’re a founder, and you’re thinking about raising money, here’s my advice:
- Get your house in order from day one. Don’t wait until you’re raising a Series A to start thinking about legal due diligence. Get your corporate records in order. Paper your stock option grants. Use proper employment and contractor agreements. It will save you a world of pain down the road. I know it’s not sexy. I know it’s not fun. But it’s one of the most important things you can do to protect your company and your future.
- Hire a good lawyer. A good startup lawyer is worth their weight in gold. They’ll help you navigate the fundraising process, and they’ll make sure you’re protected. Don’t cheap out on legal advice. It will cost you more in the long run. Find a lawyer who has experience with startups, who understands the fundraising process, and who you trust.
- Be prepared for a fight. Due diligence is a battle. The other side is looking for reasons to say no. You have to be prepared to fight for your company. You have to be prepared to defend your decisions. You have to be prepared to stand your ground. But you also have to be prepared to compromise. It’s a delicate balance, and it’s one that you’ll have to learn to strike.
Fundraising is a means to an end. It’s not the goal. The goal is to build a great company. And if you can do that, the money will follow. But when it does, be ready for the fight of your life. Because the due diligence process is not for the faint of heart. It’s a test of your will, your resilience, and your character. And if you can survive it, you’ll be stronger for it.
Frequently Asked Questions
What's the most common pushback you get on this?
People often push back by citing exceptions or edge cases. And they're usually right that exceptions exist. But building a strategy around exceptions rather than patterns is a losing game for most founders.
How can I apply this thinking to my own situation?
Start by identifying the core principle behind the opinion, not the specific example. Then ask yourself: does this principle apply to my context? If yes, test it in a small, low-risk way before going all in.
Do all experts agree with this view?
No, and that's fine. The best ideas in business are often contrarian. I share my perspective based on my experience and data, but I encourage you to seek out opposing viewpoints and form your own conclusions.