Foundational Time Based Vesting and Reverse Vesting Mechanisms
Reverse time-based vesting transfers immediate share title while granting the company nominal repurchase rights that eliminate dead equity risks upon departure.
Seed round Due Diligence
Meaning
Preliminary investigations by early stage investors confirm the legal foundation, ownership records and initial product rights of a startup before capital is committed. Most seed round due diligence focuses on verifying that founders have signed invention assignments and that the capitalization table is not encumbered by undocumented promises of equity. This logic identifies high-impact risks that would prevent the company from raising later growth capital.
Entity Verification
Confirmation that the corporation exists in good standing involves checking certificate filings and tax receipts. During seed round due diligence, legal counsel inspects the articles of incorporation to ensure no unusual restrictions exist on share classes. Basic corporate hygiene is established here.
Gaps in the minute book are flagged for correction before the wiring of funds.
Product Inspection
Patents and core software code are reviewed to confirm the team holds clear rights to use them. In the cycle of seed round due diligence, this step prevents funding a project that relies on the intellectual property of a founder’s former employer. Background checks on the key inventors verify their history in the industry.
Ownership remains the focus of this review.
Financial Baseline
Simple audits of bank statements and early vendor contracts confirm that the stated burn rate is accurate. Seed round due diligence looks for outstanding convertible notes that could suddenly dilute incoming investors. Liabilities such as back taxes or employee salary claims are documented.
The clean slate created here provides the basis for growth.