Pre-IPO Due Diligence Checklist

A practical framework for evaluating a private investment before you wire the money.

Last reviewed on 27 April 2026

Public-market diligence has the SEC doing most of the heavy lifting: standardised disclosures, audited financials, real-time price discovery. Pre-IPO diligence has none of that. You are working from a pitch deck, a partial cap table, second-hand revenue figures, and whatever the seller is willing to share. Every one of those inputs is incomplete by design.

That asymmetry is precisely why a structured checklist beats a vibes-based read. The aim of this page is not to tell you which companies are worth owning — that is your call — but to make sure you check the same dimensions before each commitment, in the same order, with the same standards.

Use it after reading the how-to-buy guide. It assumes you have already cleared the threshold checks: accredited investor status, capital you can afford to lock up for years, and a position size that fits your portfolio.

1. Business Diligence

What does this company actually do, and is it durable?

  • Product or service. What is being sold? To whom? At what price point? Pre-IPO companies often sell to a specialised audience; if you cannot describe the customer in one sentence, you have not done enough work.
  • Revenue model. Subscription, transaction, ads, licensing, hardware? Each model has different gross-margin profiles and capital requirements. Mixed models deserve extra scrutiny because reporting often blends them.
  • Unit economics. Customer acquisition cost, payback period, gross margin per customer, lifetime value. You will rarely get exact numbers; rough estimates from the company's public statements and competitor benchmarks are still better than nothing.
  • Competitive position. Who are the three closest substitutes? What is the company's defensible advantage — distribution, technology, network, brand, regulatory? Answers like "best in class" or "first mover" without a structural reason are red flags.
  • Total addressable market. Honest TAM estimates use bottom-up customer counts and realistic ARPU. Top-down "1% of a $1 trillion market" claims are routinely misleading.
  • Customer concentration. If one customer is more than 20% of revenue, the risk profile changes materially.

2. Financial Diligence

Private financials are limited and often non-GAAP. Get what you can, then triangulate.

  • Revenue and growth rate. Annualised, trailing 12 months. Is growth accelerating, stable, or decelerating?
  • Gross margin. What does the company keep after delivering the product? Software companies should be in the 70–85% range; commerce and hardware in the 20–50% range.
  • Operating leverage. Is fixed cost growth slowing relative to revenue? Mature pre-IPO companies should be approaching break-even.
  • Cash runway. How many months of operating expenses does cash on hand cover at the current burn rate? Less than 12 months means the next round dictates everything.
  • Debt and convertibles. Outstanding venture debt, convertibles, and SAFEs sit ahead of common stock at exit and complicate the cap table.
  • Auditor and audit history. A Big-Four auditor running the books for several years is a signal of governance maturity. No auditor at late stage is a red flag.

Sources to Triangulate

  • Direct disclosures: pitch deck, share-purchase agreement, annual letter to shareholders.
  • Investor letters from venture firms that hold the company.
  • Reputable news coverage and trade publications.
  • Public-company comparables in the same vertical.

3. Cap-Table Diligence

The cap table determines what you actually receive in an exit. Do not skip this.

  • Share class. Common, preferred (and which series)? Liquidation preferences and conversion mechanics differ by class.
  • Liquidation preference. 1× non-participating is standard. 2× participating, or stacked preferences across many rounds, can wipe out common stock at low-to-mid exit prices. The liquidation preferences explainer walks through a worked exit waterfall under three exit scenarios so you can model the conversion threshold for your share class.
  • Conversion ratio and anti-dilution. Broad-based weighted average is standard; ratchet provisions are aggressive and worth flagging.
  • Total dilution. Adding up the option pool, outstanding warrants, SAFEs, and convertibles often shows you own a smaller piece than the headline cap suggests.
  • Investor concentration. Founders versus VCs versus employees. A company with one investor controlling more than 50% of votes is structurally different from a syndicate-led company.
  • Recent secondary prints. Disclosed secondary transactions in the last 12 months tell you what informed buyers paid for the same security.

If you are buying common stock through an SPV or a forward, see our SPV vs forward guide for how the wrapper changes your effective cap-table position.

Private companies do not file 10-Ks, but they do have legal histories that matter.

  • Litigation. Active or recent suits — IP, employment, customer disputes. Some show up in regional court records; others surface only in news coverage.
  • Regulatory exposure. Fintechs, healthcare, cannabis, crypto, defence — each carries an unusual risk surface. A company depending on a single regulatory ruling can be re-rated overnight.
  • Intellectual property. Issued patents and key trademarks. For technology companies, the absence of registered IP is not necessarily a problem, but the absence of any moat usually is.
  • Restrictive covenants. Non-competes, exclusivity agreements, and channel-partner contracts can constrain growth or trigger early termination.
  • Sanctions and compliance. International revenue concentrations should be cross-referenced with OFAC and similar lists.

5. People and Governance

Founders and operators make most of the difference in private-company outcomes.

  • Founder track record. Prior exits, operational history, and any litigation. A first-time founder is not a deal-breaker; an undisclosed prior failure pattern often is.
  • Recent hires. Senior leadership recruited in the last 12 months is a positive signal. Senior departures in the same window are usually not.
  • Board composition. Independent directors, investor representation, founder control. Pay attention to founder voting rights, especially dual-class structures.
  • Equity incentive plan. Recent option pool refreshes, repricings, and unusual one-off grants. Repricings to retain employees during a down round can dilute existing investors significantly.

6. Deal Structure Diligence

Two investors paying the same headline price can end up with very different economics depending on structure.

  • Direct vs SPV vs forward. The wrapper determines fees, voting, ROFR exposure, and tax reporting. See the structures comparison.
  • All-in fees. Setup, ongoing administration, carried interest, settlement fees, transfer taxes. Compute total fee load against expected gross gains.
  • Holding-period start. Critical for capital-gains and QSBS treatment. Direct purchases give you a clean start; SPVs start the clock when the SPV buys; forwards are messier.
  • Information rights. Will you receive ongoing financials, board updates, or only year-end documents? Most retail-sized deals provide minimal information.
  • Pro-rata participation. Some structures pass through the right to invest in future rounds; many do not.
  • Exit path. Can you sell before the underlying company exits? Some SPVs prohibit transfers entirely; some forwards are de facto unsellable until exit.

7. Platform and Counterparty Diligence

If a platform sits between you and the deal, the platform itself is a risk vector.

  • Regulatory status. Registered broker-dealer, registered investment adviser, neither? Platforms registered with FINRA and the SEC have a higher disclosure bar.
  • Operational history. Length of operation, transaction volume, public reputation among institutional investors.
  • Custody. Where do your funds and shares actually sit between subscription and settlement? Segregated custody is preferable.
  • Conflicts of interest. Does the platform earn fees from sellers, buyers, or both? Carry on SPVs they sponsor? The conflict pattern affects pricing.
  • Dispute history. Regulatory actions, lawsuits, or public complaints. Brief web searches turn up surprising amounts on this.

For a head-to-head view of the major platforms, see our platform comparison.

8. Exit Path Diligence

You are buying for a future exit, so model the exit before you buy in.

  • IPO timeline. Realistic, not promotional. A "12 months out" claim that has been stable for three years is a yellow flag. Filing public S-1 documents is the only definitive signal.
  • Acquisition probability. What strategics or sponsors might buy this company? At what multiples? Multibillion-dollar private companies often have only one or two plausible acquirers.
  • Down-round risk. If the company raises again, will it be flat, up, or down? Recent peer comps in the same vertical are the best guide.
  • Lock-up exposure. If an IPO does happen, your shares will likely be subject to a 90–180 day lock-up period. Model the price drop that often follows lock-up expiry.
  • Stay-private scenario. What happens if the company keeps growing privately for another five years? Are you comfortable with that holding period?

Common Red Flags

  • Pitch decks that emphasise total funding raised rather than revenue or unit economics.
  • Pricing anchored to a "next round" that has not been formally announced.
  • Sellers in a hurry to close — informed sellers rarely are.
  • Platforms that resist sharing the underlying subscription documents until after a soft commitment.
  • Cap-table summaries that exclude SAFEs, convertibles, or recently issued options.
  • Founders whose prior failed company outcomes appear in news coverage but not in the deck.
  • Auditor changes in the last 24 months.
  • "Special situations" framing — distress sales, ROFR-walked buyers, fund liquidations — without an explicit reason for the price.

Document What You Found

Whatever level of detail your diligence reaches, write it down. A short memo per opportunity — one page is plenty — captures the price you paid, the structure, the cap-table assumption, and the exit you were underwriting. Years later, when an exit finally arrives, that memo lets you evaluate whether you were right for the right reasons.

For company-specific commentary, the profiles in the pre-IPO companies hub are a starting point, not a substitute for first-party diligence.

Bottom Line

You will never have public-market levels of information on a private deal. The point of a checklist is not to make the unknowable known; it is to enforce a consistent floor on the questions you have asked. Skip a section once and you will skip it again. Use it every time, even on names you "already know." The deal you regret most will be the one you waved through.