You may or may not get a formal list from the other side, depending on their level of formality and the nature of their advisors. Some investors know exactly what they are looking for and will figure out what they want to do from your financial model and a series of conversations. Others assume that the only way to be sure is to review a mountain of paperwork. The real answer lies somewhere in-between for most companies.

So, to get you started or at least calm you, here is a super Short Form Due Diligence Request List for a seed round investment or low-key quasi-acquisition, such as an asset purchase or stealth acquisition.

First, keep in mind that the other party may, and probably will, ask for additional information. Our goal here is first to identify anything that might concern them so it can be defused or resolved before it’s ever disclosed. (Hint to bad lawyers: you cannot hide things; there’s always a second copy floating around; the goal is to solve the problem so you can disclose how it has already been fixed.) Our second goal is to streamline as much of your work as possible so that you are not under time pressure later. The third goal is to identify the factual support for the business plan/budget that will be a critical piece of the transaction.

Here is the list of other materials you should be gathering in the background as negotiations continue, documents are drafted, and the deal moves forward.

1. Financials — Copies of all historical financials for existing operations: Income Statement, Balance Sheet, and Cashflow statements. (A backup version of a QB file is something that I regularly work with to extract these directly if necessary.)
2. Material contracts — all contracts that are either above a specified dollar value ($10-25k) or are otherwise important to the continued operations of the business on a similar basis. This should usually include customer contracts, all leases, all promissory notes, and IP licenses, and anything to do with stock or securities (like a warrant agreement or agreement to trade stock for services of a consultant).
3. Corporate documents — Copies of current articles/certificate of incorporation & bylaws; minute book with board/shareholder consents & minutes.
4. Other risks — A description of any pending litigation, whether company is plaintiff or defendant; any audit letters from auditors if financials have been audited in last 3 years; a description of any off-balance sheet obligations or other liabilities; and a summary of any related-party transactions, individually or in the aggregate greater than $25,000.

This ThoughtStorm Due Diligence Request list is a version written from the perspective of an investor and is a little more detailed than what I have above. It’s more like a reasonably thorough list that will get you most of the way to complete for an early-stage company.

It reminded me of one of the best bits from Al Dunlap’s Mean Business (aff. link) (before he embarrassed himself at Sunbeam) was when he was reviewing a restructuring plan and pushed the team to make all the job cuts at once, “this quarter,” rather than dragging things out. His rationale was that it was better for the company, and even better for the workers as a whole, if the situation moved from old to new as soon as possible. The people left behind would know that they weren’t still at risk next month and could get back to work, and the people leaving wouldn’t be put through the emotional ringer for months before having to look for new jobs. (My recollection is bad on whether he planned t0, and actually did or didn’t, use some of the savings from a faster plan to juice the separation packages.)

I agree with Margaret: good change should start now. In the Army, that was the second part of being decisive: once your decision is made, you put it into action right away. No sense fooling around (or even worse, rethinking it!).

The first incarnation of thoughtstorm.com was for a business that, in modern terms, facilitated the crowdsourcing of advertising ideas for companies and ad agencies looking for fresh sources. The VC client with whom I spoke at the time, seeking feedback and funding, said that the idea would not really do well because of the inherent risk for buyers: not the IP risk but the knowledge that a baby commercial was the idea of a child molester, or something similarly awful from a PR perspective. I took his advice and continue to respect his opinion and knowledge; the only reason I won’t link to him now is to avoid appearing ungrateful for his honest opinion or casting aspersions on his advice with the benefit of hindsight; I certainly didn’t take the alternative route and followed his advice of my own accord.

Seeing these sorts of articles, about crowdsourcing in general and advertising in particular, has nevertheless always been a bit of a sore spot for me. I’ve always thought that I’ve had a succession of good, even very good ideas, and I’ve apparently done poorly at getting them executed, at creating something substantial that exists in the world.

So this self-awareness is part of the genesis of the “orphan ideas” tag on this site and even on the “official” ThoughtStorm blog. My goals are to:

1. Release the old ideas from my brain and to-do lists so they’re not cluttering up my thinking and draining my energy, particularly if I’m not actually likely to do anything about them now. GTD advocated moving these to “Someday.” I’m accepting that “Someday” is closer to “Never” and doing something, however small, in taking that step.
2. Gain psychological credit for having ideas before other people; not really worth much, but it’s a way to help myself accept #1 and points me to #3.
3. Encourage me to pursue ideas in some tangible format, whether rapid prototyping of a social networking website or actual writing related to a book idea (and then a follow-up with a proposal). Executing is all that really counts; ideas really are a dime a dozen, but people who can turn an idea into something, anything, even an ugly but functional website, are rare.
4. Recognize value that I’m just not that interested in pursuing and so revealing it for someone else to work with or build on. It’s like seeing a bag of returnable cans in the garbage; I’m not really likely to take it out, but I’ll gladly tell someone who’s collecting cans about it. What’s the harm to me of benefiting society in that tiny way? What have I lost? Nothing, and if you think about the gains from #1, 2, and 3, I’m actually better off.

So the history of ThoughtStorm is now revealed. I’ll try to update that old c2b page into a post so it’s legible and more accessible.