Preparing for Series A

From signed term sheet to closed round is typically 60-90 days. Diligence runs in parallel across financial (run by the investor's QofE provider, often a Big Four), legal (run by the investor's lead law firm), and commercial (run by the investor's deal team or a specialist firm). Each workstream issues its own information requests, follows up on inconsistencies, and produces a report to the investor's investment committee before the round closes.

The first 30 days are document collection: data room population, founder Q&A, initial restatement work. Days 30-60 are deep diligence: cohort analysis, customer reference calls, technical architecture review, tax-position confirmation. Days 60-90 are issue resolution: any retrade conversations, final negotiation, signing and closing. Companies that try to do diligence reactively (waiting for the request before producing the document) routinely run past 90 days and watch the term sheet expire.

A clean Series A data room has eight top-level folders: Corporate (incorporation docs, articles, board minutes, share register, cap table), Commercial (customer contracts, supplier contracts, partnership agreements), Financial (audited or reviewed accounts, monthly management accounts, board packs, budget vs actual), Tax (CT600s, VAT returns, R&D claims, PAYE filings, EMI scheme docs), Legal (litigation, threatened claims, IP register, regulatory permissions), HR (employment contracts, options, share schemes, policies), Technical (architecture, security audit, IP transfer agreements), and Insurance (cover certificates, claims history).

Each folder needs a clean index document at the top showing what's there, what's missing, and the explanation for any gaps. Investors and their advisors form an early impression from the data-room organisation alone, a well-structured room signals operational maturity, a chaotic room signals founders who haven't kept up with the business they're now selling 30% of.

Quality of Earnings (QofE) is the financial diligence workstream. The provider, usually a Big Four (Deloitte, KPMG, PwC, EY) or a specialist firm (Grant Thornton, BDO, RSM), restates the company's financials on a basis that surfaces the 'real' run-rate revenue and EBITDA. Common restatements: reclassifying one-off revenue as non-recurring, normalising founder compensation to market rates, restating expenses on accruals when the company has been on cash, removing discretionary spend that wouldn't continue under new ownership.

The QofE report is what the investor's investment committee actually reads. The report's headline numbers, adjusted ARR, adjusted EBITDA, normalised gross margin, are the basis for the post-money valuation. Founders who present unrestated metrics in the pitch and let the QofE do the restatement get pushed down to the QofE numbers. Founders who pre-restate (running the QofE work themselves before going to market) anchor the conversation at the cleaner figure.

Tax diligence is structured around the principle that any tax position the company has taken in the last 36 months could become the buyer's liability post-acquisition. The diligence covers corporation tax (CT600 filings, R&D claims, capital allowances, transfer pricing if relevant), VAT (returns, schemes, partial exemption, reverse charge), PAYE (RTI compliance, IR35 status decisions, expense policies), and indirect tax (SDLT on property, customs duty on goods).

The big retrade triggers in startup diligence: R&D claims that don't survive scrutiny (reductions in qualifying expenditure, requirement to repay prior credits with interest), VAT positions that are likely to be re-determined on HMRC inspection, IR35 contractor relationships that should have been employment, and EMI option grants with notification or qualifying defects. Each of these is fixable with lead time but punishing in mid-diligence: a £200k R&D restatement reads as a £200k goodwill writedown to the buyer.

Specialist startup accountants run a tax-specific pre-diligence covering the same scope as the buyer's advisor and surface every issue with 60-90 days of fix runway before the real diligence opens.

Cap table integrity is the discipline of having the share register, option register, and Companies House filings reconcile to the same set of numbers across every meaningful date. Most pre-Series-A startups have minor cap-table inconsistencies: a director appointment not filed on time, an option grant where the agreement and the notification disagree on the date, share transfers that didn't update the share register.

These inconsistencies are individually small but stack up under Series A diligence. Each one is a question from the investor's lawyer that needs explanation, documentation, and sometimes corrective filing. A cap table with 20 issues like this turns the legal diligence into a six-week marathon and pushes valuation down because every issue introduces uncertainty.

Specialist accountants reconcile the cap table monthly using one canonical record (typically Carta, Capdesk, or a maintained Excel) and audit it against Companies House quarterly. The result is that diligence finds nothing, and the investor's legal team closes the workstream in 10 days instead of 30.

Commercial diligence is where founders win or lose the round on factors outside the financials. The investor's deal team (or a specialist commercial-diligence provider) interviews 5-15 customers across the cohort, validating the value proposition, the churn dynamics, the expansion behaviour, and the competitive position. The reference calls are typically the single highest-stakes part of diligence, a single weak call can kill the round.

Founders who control the reference call list (proposing the customers the investor speaks to) get cleaner outcomes than founders who let the investor pick from the customer list. The discipline: prepare 15-20 customers who will reference well, brief them on the diligence call format, and make sure they will be available in the diligence window. The investor will accept founder-proposed references for the first round and may add their own picks; both will be called.

Recurring red flags that tank rounds or trigger retrades: revenue concentration above 40% in a single customer (kills B2B SaaS rounds), MRR composition heavily weighted to professional services not subscription (signals services revenue dressed up as recurring), gross margin below 65% on B2B SaaS (suggests cost structure issues that scale linearly with revenue), churn that's actually flat or rising (often hidden by net-new growth in the headline cohort metric).

On the operational side: founders who can't articulate the unit economics in clean numbers, founder-team gaps that haven't been backfilled, IP that's not assigned to the company (founders who built v1 personally and never assigned), customer contracts with unfavourable change-of-control clauses that would let key customers terminate at acquisition.

These all surface in diligence. Specialist startup accountants identify the red flags during pre-diligence and either fix them (assign IP, restructure customer concentration, accelerate the founder-gap hire) or build the narrative around them in the pitch so the investor isn't surprised by them mid-diligence.