{"id":6651,"date":"2014-05-05T10:00:00","date_gmt":"2014-05-05T14:00:00","guid":{"rendered":"https:\/\/www.wework.com\/creator\/?p=6651"},"modified":"2020-03-30T23:21:00","modified_gmt":"2020-03-31T03:21:00","slug":"startup-guide-due-diligence","status":"publish","type":"post","link":"https:\/\/www.wework.com\/ideas\/professional-development\/startup-guide-due-diligence","title":{"rendered":"Startup guide: Get organized by thinking about due diligence"},"content":{"rendered":"

In \u201cStart at the Ending\u201d the folk musician David Wilcox<\/a> advises couples to start backwards in relationships, at the end instead of a beginning.  His reasoning is that if you work backwards in a relationship you\u2019ll end up being happy. Of course his advice isn\u2019t realistic.  Or is it?<\/p>\n

Companies face endings throughout their life cycles \u2014 at the end of each of the stages they go through \u2014 from startup to liquidity.  The ends are often marked by the company being subjected to due diligence by third party.<\/p>\n

But what is due diligence?<\/p>\n

Due diligence is a process through which a third party reviews a company\u2019s records to quantify the risks of doing a deal with it.  Technically it is a \u201cmeasure of prudence, activity or assiduity, as is properly expected from, and ordinarily exercised by, a reasonable and prudent person under the circumstances; not measured by an absolute standard, but depending on the relative facts of the special case.\u201d In practice, the party conducting due diligence will expect to see certain documents and materials.<\/p>\n

Significantly, due diligence can be both stressful and expensive for the subject of the review. Often companies have to scramble to document or find the materials the third party has requested.  Delays in responding to due diligence requests can delay a transaction in the best situation or kill the deal in a worst-case scenario.<\/p>\n

Following David Wilcox\u2019s advice to start at the ending will save you time and money, and a lot of stress, when your company faces an ending during its life cycle.  The expectations third parties will have during due diligence will differ depending on a variety of factors, from the stage at which the diligence occurs to the industry in which the target operates.  However, obtaining, maintaining, and organizing the documents and materials will make it easier to meet the expectations, whatever they are!<\/p>\n

From the outset you should set up a depository where you organize documents and agreements. Below is an approach to organizing the materials based on the subject matter or types of agreements involved.<\/p>\n

Corporate Governance<\/strong><\/p>\n

\u2219 Formation documents<\/p>\n

\u2219 Founders\u2019 Agreement<\/p>\n

\u2219 Shareholders\u2019 Agreement<\/p>\n

\u2219 <\/b>Capitalization table and stock ledger<\/p>\n

\u2219 83(b) Election and securities compliance<\/p>\n

\u2219 Director and Officers agreements<\/p>\n

Employee and Independent Contractor Matters<\/strong><\/p>\n

\u2219Employee agreements<\/p>\n

\u2219Independent contractor agreements<\/p>\n

\u2219Employee incentive materials<\/p>\n

Intellectual Property<\/strong><\/p>\n

\u2219 Invention disclosures<\/p>\n

\u2219 Non-disclosure and Invention Assignment Agreements<\/p>\n

\u2219 Annotated source code or other similar documentation for an invention<\/p>\n

\u2219 Trade Secret Policies and Procedures<\/p>\n

\u2219 Trademark registrations and copyright registration<\/p>\n

\u2219 Patent applications and supporting materials<\/p>\n

Third Party Matters<\/strong><\/p>\n

\u2219 Non-disclosure agreements<\/p>\n

\u2219 Vendor and customer agreements<\/p>\n

\u2219 Intellectual property licenses<\/p>\n

\u2219 Leases<\/p>\n

\u2219 Account receivables<\/p>\n

Another advantage of organizing a company from the perspective of an ending is that it provides the opportunity to monitor your company\u2019s growth, manage costs and comply with laws and regulations. Each time there is an event, whether bringing on a new employee, engaging outside developers or raising funds through equity or debt, you will be thoughtful about documenting it. For example, you can create file for each employee that contains the offer letter, employment agreement, and tax information.<\/p>\n

Implementing a document management procedure with an eye toward an ending will help you efficiently grow your company while avoiding unnecessary stress. Approach the beginning from the perspective of what others will expect to see during a deal and your ending will be a happy one!  David Wilcox is right if you start with the ending it\u2019s the best way to begin.<\/p>\n","protected":false},"excerpt":{"rendered":"

In \u201cStart at the Ending\u201d the folk musician David Wilcox advises couples to start backwards in relationships, at the end instead of a beginning.  His reasoning is that if you work backwards in a relationship you\u2019ll end up being happy. Of course his advice isn\u2019t realistic.  Or is it? Companies face endings throughout their life […]<\/p>\n","protected":false},"author":1168,"featured_media":6682,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[43902],"tags":[],"class_list":["post-6651","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-professional-development"],"acf":[],"yoast_head":"\nStartup guide: Get organized by thinking about due diligence<\/title>\n<meta name=\"description\" content=\"In \u201cStart at the Ending\u201d the folk musician David Wilcox advises couples to start backwards in relationships,\u2026\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.wework.com\/ideas\/professional-development\/startup-guide-due-diligence\" \/>\n<meta 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