Latest / The Series A Show with Fexingo: Early-Stage Funding, Pitch Decks, and Startup Milestones / Series A Due Diligence Checklist 2026
Transcript
- Lucas: So, Luna, we've hit episode one fifty of the Series A Show, and I thought we'd mark the milestone by tackling the part of fundraising that nobody likes to talk about but everybody sweats through. Due diligence. Luna: Oh, the fun part. Where your startup's dirty laundry gets aired out in a data room. Lucas: Exactly. And in 2026, the bar has moved. I was talking to a partner at a mid-size venture fund last week, and she said something that stuck with me. She said, 'I can tell within thirty minutes if a founder's going to survive diligence, and it's not about the pitch.' Luna: What is it about then? Lucas: It's about whether the data room is organized before the first meeting. Not after the term sheet, not during the 'we're excited' call. Before. Because the moment a serious investor asks for access, they're already testing how you operate under pressure. Luna: So it's a proxy for execution. That makes sense with the current market, where investors are being pickier than ever. Lucas: Right. And that pickiness has a name. I've seen it in term sheets. There's a new line item that's become standard in 2026: a 'customer concentration analysis' slide. And if you haven't been tracking that data from day one, you're scrambling. Luna: Customer concentration has always mattered, but now it's on every checklist? What's driving that? Lucas: Part of it is the macro environment. We just saw Shopify pop nearly thirty percent in five days, and then you've got Alphabet down five percent. Investors are nervous about revenue durability. And if one customer is forty percent of your revenue, that's not durable. So they're asking for the analysis upfront. Luna: So founders need to show they've thought about that. But what about the classic metrics? Are unit economics still the holy grail? Lucas: Oh, absolutely. But the bar has gotten more sophisticated. It's not just 'are you gross margin positive.' Now they're looking at your contribution margin after fully loaded costs. And they're asking to see a cohort analysis that proves your unit economics improve over time, not just in the aggregate. Luna: And if the cohort data isn't there? Is that a dealbreaker? Lucas: Not always, but it's a yellow flag. Because one of the things that tripped up founders in the last downturn was masking deteriorating cohorts with new customer growth. Investors got burned, and now they want to see the underlying trend. Luna: So if you're a founder listening, you need to have cohort tables ready. But there's also the burn multiple. I feel like that's become a buzzword in 2026. Lucas: It has, but it's a useful one. The burn multiple is net burn divided by new ARR. And in a market where capital is more expensive, investors are looking for a burn multiple under one point five. If you're above two, you better have a compelling reason. Luna: And what counts as a compelling reason? Lucas: Usually it's a land and expand strategy where you're intentionally spending to win logo accounts that will expand later. But you need to show that expansion data. Otherwise it just looks like you're buying growth. Luna: Got it. So data room, unit economics, burn multiple. What else is new? I saw in one of the recent headlines that even Rippling built an internal tool to measure employee ROI after spending millions on AI. Is that bleeding into diligence? Lucas: That headline was actually about Rippling's own internal process, but it points to a broader trend. In diligence, investors are now asking about your AI spend. Specifically, if you're using AI in your product or operations, they want to see a slide on ROI. It's not enough to say 'we use AI.' They want to know what it's costing you and what it's saving you. Luna: That makes sense, especially with all the hype around AI. Investors want to make sure you're not just burning cash on models that don't move the needle. Lucas: Exactly. And this connects to a comment a founder made to me recently. She said, 'The due diligence process is actually a gift. It forces you to get your house in order.' And I think that's the right framing. The founders who treat diligence as an obstacle to dread are the ones who get caught off guard. Luna: So what's the one thing a founder can do this week to prepare? If they haven't started yet? Lucas: I'd say create a single 'due diligence master document.' You know, a Google Sheet or Notion page that lists every document you might need: incorporation papers, financial statements, cap table, customer contracts, IP assignments, and so on. And then start filling in the links or files next to each item. Even if it's incomplete, having the skeleton is huge. Luna: That's a great low-effort first step. And it shows investors you're organized. Lucas: And it saves you from the midnight scramble when the investor asks for your 'customer list by segment.' You don't want to be that founder who takes forty-eight hours to produce a basic spreadsheet. Luna: That's a real horror story. I've seen it happen. Lucas: And that's the thing. The due diligence process is basically a test of how you run your company. If you've been keeping clean records, the test is easy. If not, it's a fire drill. So the founders who treat it as an afterthought are the ones who end up losing a term sheet over something fixable. Luna: Okay, so we've covered the data room, unit economics, burn multiple, and AI ROI. Is there anything else that's become a dealbreaker in 2026? Lucas: One more thing: the 'exit route' slide. We've talked about this before on the show, but it's now a standard part of many diligence checklists. Investors want to see that you've thought about how they're going to get liquidity. It doesn't have to be a detailed M&A analysis, but you should have a slide that outlines potential acquirers or the IPO path. Luna: And that's tied to the market reality that IPO windows are unpredictable. So VCs want to know there's a plan B. Lucas: Exactly. And if you think about it, all of this comes back to the same theme: rigor. The startups that get funded in 2026 are the ones that have been running their business with a level of discipline that used to be reserved for later-stage companies. The bar has been raised. Luna: And that's actually a good thing for the ecosystem. It means the companies that do raise are more likely to succeed. Which is better for everyone. Lucas: Absolutely. And it's also why conversations like this matter. If we can help founders avoid the common pitfalls, they'll have a smoother ride. That's the whole point of this show. Luna: It is. And, you know, it's also why I appreciate that our listeners support what we do. It keeps these conversations free and helps us keep diving into topics that matter to founders. If you find value in that, you can support the show at buy me a coffee dot com slash fexingo. Lucas: Yeah, every bit helps. But back to the topic: the data room is the first thing, but what about the cap table? I've seen founders with messy option pools that scare off investors. Luna: Oh, that's a classic. A cap table with confusing option grants can kill a deal faster than you'd think. Lucas: Right. Investors want to see a clean cap table that's easy to understand. If you have multiple classes of preferred stock with weird terms, or option grants that are underwater, you're going to have to clean that up before you can close. It's one of those things that founders often overlook because they're focused on the pitch. Luna: So what's your advice for founders who know their cap table is a mess but don't want to pay for a lawyer? Lucas: First, don't wing it. A good corporate lawyer is worth the money, and many will offer a fixed fee for a diligence readiness package. That's the cheapest insurance you'll buy. Second, use a tool like Carta or Pulley to keep it organized. But the key is to start early. You don't want to be doing a 409A valuation and option repricing in the middle of diligence. Luna: That's a nightmare scenario. And it happens more often than you'd think. Lucas: It does. But the good news is that most of these issues are fixable if you give yourself enough time. So the takeaway for founders is: start your diligence prep at least three months before you plan to raise. That's the single best thing you can do. Luna: Three months sounds about right. And that's a great note to end on. Thanks for being here for episode one fifty, everyone. We'll be back with more next week.