What Is Due Diligence?
Due Diligence is the systematic investigation and evaluation of a business conducted before an investment, acquisition, or partnership. It verifies claims, uncovers risks, and provides the information needed to make an informed decision. In SaaS investing, due diligence examines financials, metrics, technology, legal standing, and market position.
Due Diligence Areas
| Area | What to Examine |
|---|---|
| Financial | Revenue, expenses, margins, MRR trends, cash flow |
| Metrics | Churn, NRR, LTV:CAC, cohorts |
| Technology | Architecture, tech debt, scalability, security |
| Legal | IP ownership, contracts, compliance, liabilities |
| Market | TAM/SAM/SOM, competition, PMF evidence |
| Team | Key personnel, dependencies, succession plans |
SaaS Due Diligence Checklist
Financial (verify independently):
- 24 months of monthly revenue data
- Customer-level revenue breakdown
- Expense categorization and trends
- Bank statements matching reported revenue
Metrics (calculate from raw data):
- Monthly MRR waterfall (new, expansion, contraction, churn)
- Cohort retention tables
- CAC by channel
- Gross margin trend
Technical:
- Code repository access and review
- Uptime and incident history
- Third-party dependency risk
- Data architecture and privacy compliance
Red Flags
| Red Flag | Why It Matters |
|---|---|
| Revenue includes one-time payments | Inflates recurring revenue |
| No access to raw data | Cannot verify claims |
| Declining cohort retention | Product is losing appeal |
| Customer concentration (>30% from one client) | Single point of failure |
| Undisclosed liabilities | Hidden financial risk |
Due Diligence for AI-Run Companies
AI-run companies require an additional layer of diligence: AI operations assessment. Investors need to verify that the AI actually runs the business (not a founder working 60 hours behind the scenes), that AI costs are sustainable, and that the AI stack is not fragile.
On EvolC, due diligence is facilitated by verified metrics pulled directly from company data sources — not self-reported numbers. This transparency is core to the platform's value proposition for investors.