SaaS Due Diligence Checklist: What Investors Will Examine

Why due diligence preparation matters

Due diligence is where fundraises succeed or fail. You may have a compelling pitch deck and strong growth metrics, but if your data room is incomplete, your numbers do not reconcile, or your contracts have issues, the deal will stall -- or the terms will shift against you.

The best time to prepare for due diligence is before you start fundraising. Investors move quickly when they see a well-organised data room. They slow down -- or walk away -- when they have to chase basic information.

This checklist covers everything a serious investor will examine during SaaS due diligence, organised by category.

Financial due diligence

Financial DD is the foundation. Investors need to trust your numbers before they trust anything else.

Historical financials

• Profit and loss statements -- Last 3 years (or since inception), monthly granularity, management accounts format
• Balance sheets -- Monthly, with clear categorisation of assets, liabilities, and equity
• Cash flow statements -- Monthly, reconciled to bank statements
• Bank statements -- Last 12-24 months from all accounts
• Trial balance -- Most recent, exported from your accounting system (Xero, QuickBooks, Sage)
• Management accounts -- Monthly pack as presented to your board, including narrative

Revenue recognition

This is where SaaS due diligence gets specific. Investors will scrutinise how you recognise revenue.

• Revenue recognition policy -- Written policy aligned with FRS 102 or IFRS 15
• Deferred revenue schedule -- Monthly deferred revenue roll-forward showing opening balance, new billings, recognised revenue, and closing balance
• Contract analysis -- Breakdown of revenue by contract type (annual upfront, monthly, multi-year)
• Billing vs recognition timing -- Clear reconciliation between cash received, amounts invoiced, and revenue recognised
• Non-recurring revenue -- Separately identified (implementation fees, one-time services, hardware)

Forecasts and projections

• Financial model -- 3-5 year forecast with clear assumptions, driver-based (not top-down hockey stick)
• Scenario analysis -- Base case, upside case, and downside case with different growth assumptions
• Cash runway calculation -- Months of runway remaining under each scenario
• Hiring plan -- Headcount forecast by department with fully-loaded costs
• Revenue build-up -- Bottom-up from existing customers, expansion, new logos, and churn

Tax and compliance

• Corporation tax returns -- Last 3 years, filed and paid
• VAT returns -- Last 8 quarters, reconciled to revenue
• R&D tax credit claims -- History of claims, methodology, and any HMRC enquiries
• PAYE/NIC compliance -- RTI submissions up to date, no arrears
• Companies House filings -- Confirmation statements and annual accounts filed on time

SaaS metrics due diligence

Sophisticated investors will build their own metrics from your raw data. If your reported metrics do not match what they calculate, trust is lost immediately.

Monthly recurring revenue (MRR)

• MRR schedule -- Customer-level MRR for every month, showing each customer's contribution
• MRR movements -- Monthly waterfall: opening MRR + new + expansion - contraction - churn = closing MRR
• MRR reconciliation -- MRR schedule total must reconcile to P&L subscription revenue (with adjustments for billing timing)

Annual recurring revenue (ARR)

• ARR calculation -- MRR x 12, clearly stated and consistent
• ARR bridge -- Quarterly or annual bridge showing new ARR, expansion, contraction, and churn
• Committed ARR -- Separately identify contracted but not yet live ARR

Churn and retention

• Gross revenue retention (GRR) -- Monthly and annual, showing how much revenue you retain from existing customers excluding expansion
• Net revenue retention (NRR) -- Monthly and annual, including expansion. Investors want to see NRR above 100%
• Logo churn -- Customer count churn rate, monthly and annual
• Churn cohort analysis -- Retention curves by monthly or quarterly cohort, showing whether churn is improving over time
• Churn reasons -- Categorised reasons for every customer lost in the last 12 months

Unit economics

• Customer acquisition cost (CAC) -- Fully loaded: sales and marketing spend divided by new customers acquired
• Lifetime value (LTV) -- Average revenue per customer divided by churn rate, or cohort-based LTV
• LTV:CAC ratio -- Target above 3:1
• CAC payback period -- Months to recover the cost of acquiring a customer. Target under 18 months
• Gross margin -- Subscription gross margin, excluding services revenue and costs

Growth metrics

• Month-over-month growth rate -- MRR growth for the last 12 months
• Year-over-year growth rate -- ARR growth comparing same period
• Quick ratio -- (New MRR + Expansion MRR) / (Contraction MRR + Churn MRR). Target above 4:1
• Sales efficiency -- Net new ARR divided by sales and marketing spend

Legal due diligence

Legal DD protects the investor from hidden liabilities and ensures the company actually owns what it claims.

Corporate structure

• Cap table -- Fully diluted, showing all shares, options, warrants, convertible notes, and SAFEs
• Articles of association -- Current version with any special rights or restrictions
• Shareholders agreement -- Including drag-along, tag-along, pre-emption, and consent rights
• Board minutes -- Last 2 years, showing proper corporate governance
• Previous funding round documents -- Term sheets, subscription agreements, side letters

Intellectual property

• IP ownership -- Confirmation that all IP is owned by the company, not founders or contractors
• IP assignment agreements -- From all founders, employees, and contractors who contributed to the codebase
• Trade marks -- Registered or applications pending
• Open source audit -- List of open source libraries used, with licence types (GPL dependencies are a red flag)
• Patent applications -- If any

Customer contracts

• Template customer agreement -- Standard terms and conditions
• Material customer contracts -- Top 10 customers by revenue, full contracts
• Contract terms analysis -- Average contract length, auto-renewal provisions, termination clauses
• Concentration risk -- Revenue share of top 1, 5, and 10 customers (top customer above 20% is a concern)
• Outstanding disputes -- Any customer disputes, threatened litigation, or unresolved complaints

Employment

• Employment contracts -- Template and any variations for senior hires
• Option scheme -- EMI scheme documentation, option agreements, vesting schedules
• Contractor agreements -- All consultancy agreements, with IR35 status assessments
• Employee handbook -- Current policies
• Outstanding employment claims -- Tribunal claims, grievances, settlement agreements

Regulatory and compliance

• Data protection -- GDPR compliance documentation, data processing agreements, privacy policy
• Information security -- ISO 27001 certification or SOC 2 report (if applicable)
• Industry-specific regulation -- FCA, SRA, or sector-specific compliance (if applicable)
• Insurance -- Professional indemnity, public liability, D&O, cyber insurance

Operational due diligence

Investors want to understand whether the business can scale efficiently.

Technology and product

• System architecture -- High-level architecture diagram showing key components
• Tech stack -- Languages, frameworks, cloud providers, third-party dependencies
• Infrastructure costs -- Monthly cloud spend, trend over time, cost per customer
• Uptime and reliability -- SLA commitments, actual uptime history, incident log
• Development velocity -- Release frequency, deployment process, testing coverage
• Technical debt -- Known issues, migration plans, scalability concerns
• Security practices -- Penetration testing results, vulnerability management process

Team and organisation

• Org chart -- Current headcount by department
• Key person risk -- Dependencies on specific individuals (founders, lead engineer, key account manager)
• Hiring pipeline -- Open roles, time to hire, hiring plan
• Culture and retention -- Employee turnover rate, Glassdoor reviews (investors do check)

Go-to-market

• Sales process -- Pipeline stages, conversion rates, average sales cycle length
• Marketing channels -- Customer acquisition by channel, cost per channel
• Pipeline report -- Current pipeline by stage, weighted pipeline value
• Customer success -- Onboarding process, NPS or CSAT scores, support ticket volume and resolution time

Preparing your data room

A well-organised data room signals professionalism and accelerates the process.

Structure

Organise your data room into clear folders that mirror the categories above: Financial, Metrics, Legal, Operational, Corporate. Use consistent naming conventions and date-stamp documents.

Common mistakes

• Incomplete data -- Missing months in your MRR schedule, gaps in bank statements, or unsigned contracts all create doubt
• Inconsistent numbers -- If your pitch deck says £2.1m ARR but your MRR schedule shows £165k MRR (which is £1.98m annualised), investors will question everything else
• Stale documents -- Board minutes from 18 months ago, an outdated cap table, or last year's financial model suggest the business is not well managed
• No narrative -- Raw data without context is hard to interpret. Include a brief memo explaining key trends, one-off items, and anything unusual

Timeline

Allow 4-6 weeks to prepare a comprehensive data room. If you are planning to fundraise in Q2, start preparation in January. Rushing data room preparation during an active process leads to errors, delays, and lost leverage.

Key takeaways

• Start early -- Prepare your data room before you start fundraising, not after a term sheet
• Reconcile everything -- MRR to revenue, revenue to bank, cap table to Companies House. Investors will check
• Be honest about weaknesses -- Every company has issues. Disclose them proactively rather than having them discovered
• Automate where possible -- Use tools that generate your MRR schedule, board packs, and financial model from live data so your data room is always current
• Think like the investor -- What would make you nervous if you were writing a cheque? Address those concerns before they are raised