The Financial Due Diligence Checklist: Preparing Your Denver Startup for the Investor Deep Dive

You are standing in a conference room in LoDo or perhaps sitting in a Zoom waiting room. The partner from the VC firm nods. They like the vision. They like the market size. They like you. Then comes the sentence that keeps startup founders awake at night.

"Send us access to your data room. We will have our analysts dig into the financials this week."

Your heart stops. You have a slide in your deck labeled "Financials." It has a neat bar chart showing revenue going up and to the right. It looks professional. The problem is that the chart is mostly aspirational. Behind that slide lies a Quickbooks account you haven't opened in four months. There is a shoe box of receipts. There are personal expenses mixed with business expenses.

You are not alone in this fear. Many founders in the Denver tech scene view accounting as a distraction from product-market fit. They focus on the code and the customer. That is understandable. But when you ask an angel investor or a venture capital firm for money, you are selling equity in a business. They need to know that a business actually exists.

Due diligence is the process where investors verify that reality matches your sales pitch. It is where deals die. The good news is that you do not need perfect profitability to pass due diligence. You need clarity. You need hygiene. You need to show that you respect their capital enough to track it.

The Shift from Visionary to Operator

There is a distinct mental shift that happens during fundraising. The pitch deck is about the future. It is about what could happen. Due diligence is about the past and the present. It is about what has happened.

Investors know that early-stage SaaS startups are messy. They expect a burn rate. They expect pivots. What they do not tolerate is incompetence or dishonesty. If your pitch deck claims you have $20,000 in Monthly Recurring Revenue but your bank deposits show $12,000, the conversation is over. It does not matter if there is a logical explanation. You have lost trust.

The goal of your financial preparation is to build a narrative of competence. You want the investor to look at your spreadsheet and see a founder who knows their unit economics.

The Three Pillars of Financial Due Diligence

Your due diligence checklist begins with the three core financial statements. These cannot be guesses. They must tie out to your bank statements.

The Income Statement (Profit and Loss)

This shows your performance over a period of time. For SaaS companies, revenue recognition is the trap. If a customer pays you $12,000 upfront for a one-year contract in January, you cannot book $12,000 of revenue in January. You must book $1,000. The rest is a liability. Investors look for this immediately. It tells them if you understand the subscription business model.

The Balance Sheet

This is the statement most founders ignore. That is a mistake. The balance sheet shows what you own and what you owe at a specific point in time. It is the lie detector of accounting. If your Balance Sheet shows $50,000 in cash but your bank login shows $42,000, your books are wrong. There is no gray area here. This must be reconciled to the penny.

The Cash Flow Statement

This tells the investor how long you can survive. It takes the noise out of the P&L and shows the movement of actual dollars. This is where your "runway" is calculated. If you do not have a cash flow statement, you look like you are driving blind.

The Common Deal Killers

We see specific red flags that cause investors to walk away. You can fix most of these before you start your raise.

Co-mingling of Funds

This is the most common error. You used the company card to buy groceries. You used your personal card to pay for AWS hosting. This creates a forensic nightmare. It suggests you do not view the company as a separate legal entity. If you have done this, stop immediately. You need to reimburse the company or have the company reimburse you. Document it clearly as an "accountable plan."

Messy Cap Tables

You gave 5% to a developer who worked for you two years ago. You promised 2% to an advisor over coffee. You have a SAFE note from your uncle. None of this is written down in a central ledger. Investors need to know exactly who owns what. If there is ambiguity regarding the equity, they will not invest. They do not want to buy into a lawsuit.

Worker Classification

This is prevalent in the Denver startup ecosystem. You have five "contractors" who work 40 hours a week, use company laptops, and have set hours. You haven't paid payroll taxes on them. An investor sees this as a massive unrecorded liability. If the IRS reclassifies them as employees, the penalties are severe. Investors will deduct that potential penalty from your valuation or walk away.

Sales Tax Nexus

SaaS companies used to ignore sales tax. That changed after the Wayfair ruling. If you have customers in different states, you may owe sales tax there. Colorado is notoriously complex with its "Home Rule" cities. If you have been selling software across the country but haven't collected tax, you have a lurking debt. You need a study to determine your exposure.

Building Your Data Room

When the investor asks for the data room, you want to send a link within the hour. This signals that you are organized and hiding nothing. A data room is simply a secure folder structure in the cloud. It should be boring. It should be comprehensive.

Your financial folder should contain the following:

• Monthly P&L and Balance Sheet: Go back at least two years or to inception.
• Bank Statements: PDF copies that match the months of your financial reports.
• A/R and A/P Aging Reports: Who owes you money and who do you owe.
• The Cap Table: A detailed spreadsheet of ownership.
• Tax Returns: Federal and State returns for all prior years.
• Contractor Agreements: Signed W-9s and contracts for all 1099 workers.
• The Financial Model: The Excel sheet that drives your "Financials" slide.

This last point is crucial. The model shows your logic. It allows the investor to toggle your assumptions. What happens if churn doubles? What happens if customer acquisition cost rises? If your model is hard-coded numbers rather than dynamic formulas, it is useless to them.

A Note on the Colorado Context

The Denver and Boulder venture scene is tight-knit. Reputation travels faster than you think. Local investors talk to each other.

If you present a "clean" set of books that turns out to be a disaster upon inspection, that story gets around. Conversely, there is respect for the founder who says, "We are an early-stage company. Our books are clean and reconciled, but our revenue recognition on the legacy contracts is manual."

Honesty regarding your operational maturity is better than a facade of perfection.

However, there are local nuances you must get right. Colorado has specific compliance requirements regarding pay transparency in job postings and registration with the Secretary of State. Ensuring your "Good Standing" certificate is actually current seems trivial. Yet we have seen deals delayed because a $10 periodic report fee was missed three years ago.

It Is Not Too Late

If reading this made you sweat, take a breath. The purpose of this list is not to induce panic. It is to provide a roadmap.

You can clean up a year of messy books. You can reclassify workers. You can formalize your cap table. The only fatal error is trying to hide the mess or hoping the investor won't notice. They will notice. They have analysts whose only job is to notice.

The best time to start due diligence preparation was the day you incorporated. The second best time is right now. Before you polish your pitch deck again, open your accounting software. Look at the numbers. If you cannot explain them, neither can your investor. Get your house in order. Then go get that check.