A Seed round focuses on your pitch, but a Series A demands a data-backed execution. When a Venture Capitalist (VC) sends a term sheet for a ₹20 Crore Series A, the real heavy lifting begins. Before any funds move, the investor’s finance and legal teams will conduct Financial Due Diligence(FDD).
In the 2026 funding landscape, FDD is rigorous, often requiring one to three months. Investors no longer settle for “growth at all costs.” Instead, they underwrite your ability to execute, specifically looking for scalable compliance and clean unit economics.
At CA Pavan Kumar & Co., we have supported numerous founders through this process. Below is the FDD checklist you must complete for Series A funding, along with the “deal killers” you must avoid.
1. Quality of Earnings (QoE) & Revenue Validation
QoE typically consumes 30% of the FDD process. Investors look for consistency and health in your income.
- Revenue vs. Cash: Check if your reported income matches the cash deposited into your bank. Discrepancies raise immediate red flags.
- Revenue Recognition: Are you properly allocating SaaS subscription revenue over the appropriate months (Accrual/Ind AS 115), or are you artificially boosting monthly revenue by recognizing full annual payments upfront?
- Customer Concentration: Does one customer account for over 50% of your total revenue? Investors worry that if that customer leaves, your business disappears.
- Unit Economics: Investors focus on Customer Acquisition Cost (CAC) and Customer Lifetime Value (LTV) to evaluate the long-term profitability of your growth strategy.
2. Statutory and Tax Compliance (The Deal Killers)
A gaping compliance issue can cause a VC to retract a deal entirely.
- GST Reconciliation: Your GSTR-1, GSTR-3B, GSTR-2B, and audited Profit & Loss statements must align perfectly.
- Direct Tax and TDS: Investors check if you pay and submit TDS quarterly for every contractor and employee. They also verify that you have filed ITR-6 every year since incorporation.
- Pending Notices: Unresolved disputes or unresponded notifications from the Income Tax or GST departments indicate hidden liabilities.
3. The Balance Sheet & Hidden Liabilities
Investors examine your balance sheet for non-operational or risky behaviors.
- Related-Party Transactions: Did you provide undocumented loans to a founder’s relative? Do you rent office space from a promoter’s personal company at non-market rates? These actions distort your true operational costs.
- Working Capital Cycle: What is your Debtor Collection Period? If your accounts receivable are aged more than 90 days, investors consider that revenue unrecoverable.
- Provident Fund (PF) & ESI: Failing to register and remit statutory employee dues is a criminal offense in India and an instant red flag for institutional capital.
4. Cap Table, ESOPs, and FEMA Governance
Messy cap tables often halt deals. Your documentation must be airtight.
- Cap Table vs. MCA Filings: Your internal cap table and your official filings with the Ministry of Corporate Affairs (MCA) must be identical.
- ESOP Documentation: Do your Employee Stock Ownership plans have supporting documentation? Equity granted based on “verbal promises” will result in an audit failure.
- Foreign Capital (FEMA): If you raised funds from an NRI or foreign angel, did you file the compulsory FC-GPR with the RBI within 30 days? Unfulfilled FEMA filings are an absolute deal-breaker.
Prepare Your Data Room Early
Do not wait until you sign a term sheet to prepare. Establishing a secure Virtual Data Room (VDR) should start well in advance.
- Historical Financials: Gather audited financial statements, bank statements, and MIS reports for the last three years (or since incorporation).
- Tax Reconciliation: Match your GST returns with your books and ensure all TDS challans are paid.
- Legal Contracts: Digitize all employment letters, IP assignment agreements, and commercial contracts.
- Statutory Registers: Ensure your board minutes, resolutions, and ROC filings are updated and match your cap table.
Secure Your Valuation with Audit-Ready Books
When a VC submits your financial records to a Big 4 accounting firm, you cannot afford messy spreadsheets. A clean data room builds trust and significantly speeds up the funding process.
Let our Virtual CFO team conduct a mock financial due diligence on your startup, close your compliance gaps, and prepare your data room before you reach out to Series A investors.
Reach out to us today:
- Website: https://capavankumar.com/
- 📞 Call us: +91 9844081653
- 📧 Email: capavankumars@gmail.com