How To Prepare For Preliminary SaaS Due Diligence
Preliminary SaaS Due Dilligence


So you have created a successful SaaS Company capable of generating recurring revenue for the business owners. Now you have decided to sell your SaaS Company or raise money to execute your aggressive expansion plans. In this article, we’ll discuss how to prepare for preliminary SaaS due diligence while dealing with a VC firm or angel investors.

If you want to learn how to deal with an investor willing to pour money into your SaaS business, stick with us till the end of this article.

Regardless of your role in the SaaS Company and business strength, it is not an easy task to execute due diligence, mainly if you aim to raise the worth of your company.

To complete the preliminary SaaS due diligence, you are liable to provide the most up to date and accurate data to your investors.

The Initial Call

Once you have decided to raise capital or sell your SaaS business, the investment firm that might be a private equity firm or a VC firm will likely have a thirty to a sixty-minute phone call with you. Generally, an investor would like to talk with a senior associate of the SaaS Company or any junior analyst in the first call.

At this stage, the investment firm doesn’t have sufficient information about your SaaS business, but they are curious to know more and more about the company. 

Even though the initial call is not very intensive, an investment firm still wants you to disclose some essential numbers or your targeted market. 

Typically, the goal of this call is to gain insights into your business. They want to learn about the past track record of your SaaS Company, company market capitalisation, founder background and objectives. Lastly, they would like to know whether you are interested in selling an entire business or just a tiny stake.

Investigate Your Investor

So far, you have provided a piece of ample information about your SaaS Company to your potential investor. Now it’s your turn to perform further investigation. Being a founder member of the SaaS Company or part of the management team, you have the right to ask a few questions to gain knowledge of their goals and strategies.

If your SaaS business has a healthy financial condition, you are likely to receive a plethora of e-mails and phone calls from an investment firm. In this case, consider partnering with the firm you deem appropriate for your company.

Here are a few questions you should ask them:

  • Do they know about the SaaS business and its traits?
  •  Are they familiar with your market?
  • How do they deal with their portfolio companies? Do they assist the management team by providing them with the best operational executives, or are they just financial sponsors who offer corporate guidance but have nothing to do with the day-to-day business operations?
  • What study or market survey had they done before deciding to invest in your company? Are they just diversifying their portfolio or purchasing your platform because they expect meteoric growth in your business?
  • Had they invested in a similar niche before? What was their experience?

A Complete List of Preliminary SaaS Due Dilligence

Preliminary SaaS Due Dilligence

Once you have completed the telephonic conversation, interest arises from both sides for moving forward in the process. Now the question arises what could be the next step?

You’ll receive a SaaS due diligence request list in the next step. Bear in mind that it is not a frightening request list and is relatively least important than the comprehensive SaaS due diligence process.

However, consider taking a small break if you find this list interesting. Take one step back and analyse what you need to provide before moving forward.

As an owner of a SaaS Company, you should focus on providing value to your investor and substantiating that your business model is lucrative. Otherwise, you are unlikely to justify a reasonable price for your business.

The preliminary SaaS due diligence primarily focuses on the following critical aspects of the SaaS business:

  • Financial track record
  • Revenue data
  • Company total sales
  • Marketing strategy
  • Human resources
  • Product

We are going to discuss each of them in a bit more detail. Before sending a company’s data to an investment firm, don’t forget to mention a non-disclosure agreement (NDA).

Financial Track Record

A preliminary SaaS due diligence list always require you to disclose your complete financial statement so an investor can gauge the financial health of your business. Before pouring money into your SaaS business, investors would like to track revenue growth, company size, financial metrics, and all the key SaaS metrics.

It is an excellent practice to provide financial statements for the last three years. Using this financial statement, investors can gain insights into your revenue model, cost structure, and current economics of the SaaS business.

Your financials are a strong indicator of your accounting maturity. For this purpose, we strongly recommend you prepare a nicely-formatted SaaS P&L statement that must be easy to track?

On the flip side, avoid sending a dump of general ledgers to your investors so they cannot understand your businesses’ recurring revenue, operating and running expenses, and gross margins. With more precise and nicely-formatted data, you can easily convey your financial performance to your investor.

What Must be Included in Financial Statement?

  • Last three years P&L data coupled with the P&L statement for the current fiscal year.
  • Most latest balance sheet
  • Future projections for P&L
  • Evaluation of company performance.

Customer and Revenue Data

Of course, VC firms or angel investors will first investigate the data, but as a matter of fact, data underlying the financial statement tells the real story. Your customer and revenue data provide a glimpse of the company’s recurring revenue. 

Typically, during the preliminary SaaS due diligence process, the financial health and revenue model of a company is given utmost importance.

Revenue Data

Your revenue data must include your business revenue streams. It provides customer support, add-ons, license, professional services, hardware, and data storage.

Make sure that your general ledger account reflects all your revenue streams so that you can provide the most accurate and up-to-date revenue report. If you fail to report MRR and customer count accurately, you’ll experience difficulty in the due diligence process. To avoid any pitfall in this step, you need to ensure your revenue recognition process is robust and comply with the GAAP.

Customer Data

Beyond just revenue, we need to have accurate customer data. This is where the importance of historical tracking kicks in. You should keep tracking your booking upon completing each billing cycle or month.

It usually includes new releases, expansion of an existing plan, and downgrade from enterprise plan to the basic plan. Then we have churn that consists of both the dollar and logo counts.  The opposite of churn is retention, which encompasses both the dollar and net revenue retention.

There is an abundance of data in the SaaS business. You might not be tracking this data until now, but you should immediately monitor that to ensure data integrity amidst the preliminary SaaS due diligence process. With timely data tracking, you can eliminate any extra burden on your management team. Moreover, with this data, you can manage your business smartly.

Everyday Customer and Revenue Data Requests

  • Categorisation of revenue based on recurring revenue streams.
  • Revenue division based on product or a service
  • High paying customers
  • New logos acquired by businesses within a specific period and customer churn
  • New bookings, expansions, and downgrades

Sales and Marketing Data

Even though sales are the result of the collective efforts of the sales and marketing team, your marketing team receives special attention at this stage. Understanding your targeted market is an integral part of their analysis.

You need to describe whether you rely on inbound or outbound marketing strategy or a combination of both approaches. 

Apart from the customer data requests, as we have already discussed above, investors would like to know how you reach out to new customers and why you lost your past customers. You are supposed to tell them your competitive business advantage at this stage.

Sales and marketing data requests usually comprise sales structure, sales playbook, and much more. It becomes insanely difficult sometimes to prepare accurate data for preliminary SaaS due diligence.

From the marketing standpoint, they want you to tell them how you generate leads, leads to sales conversion ratio, and what marketing tools you harness to expand your business outreach. 

If your SaaS product is SMB-centric and you use an inbound marketing strategy to market your product, you must explain your conversion rate and content marketing strategy.

Standard Sales and Marketing Data Requests

  • Standard presentation of a company’s total sales in a period under consideration
  • Sales and marketing data original chart
  • Competitive analysis or a comprehensive report on market segmentation
  • Past and current sales track record
  • Key competitors of the company
  • Your current market share and a targeted industry
  • Competitive analysis
  • Market segmentation analysis


During the preliminary SaaS due diligence process, you are not supposed to provide too much information regarding your product. Initial discussions emphasise the robustness of your product rather than database or programming languages.

You might be required to give a quick demo of your product if both parties consent to the transaction.

Common Product Data Request

  • How effective is your SaaS product in addressing your targeted customer problems
  • A quick overview of the technical stack
  • Demo of the product

Human Resources

Upon successful completion of an initial phase of the due diligence process, the human resources receive traction. Investors will then want to see your employee census. 

Employee census is the list of your headcount exclusive of name that includes employees’ annual wages, commission, bonus, title, joining date, department, technical expertise, ethnic background, and location.  All this information can be extracted from the payroll system.

With all this essential information in hand, investors can evaluate the company’s cost structure. After combining this information with a P&L statement, they can determine how much operating leverage you have in your business. 

In other words, if your revenue and bookings jack-up, how much growth can you expect in your headcount?

Although HR request seems straightforward, this area can be excruciating if you cross the $10M ARR benchmark if you are undergoing due diligence. 

Apart from that, investors will delve deeper into the incentive offered to the customers, employee documentation, worker classification, and much more. Our goal here is not to frighten you but to make sure you are well-prepared beforehand.

Common HR Data Request

  • Historical employment trends
  • Employees headcounts
  • Satisfaction level of employees with the company
  • Employees expertise


The purpose of this descriptive article is to enlighten your mind and prepare you for the preliminary SaaS due diligence process. If you fail in providing the data mentioned above, you cannot persuade any VC firm to pour money into your business or purchase your SaaS business.

If you opt for a preliminary SaaS due diligence process, you can multiply the data request tenfold. During the due diligence, investors will delve deeper into all the critical areas of your SaaS business, even in some areas that don’t even exist.

If you cross the $10M ARR, due diligence will be excruciating for you if you are not well-prepared.

It is pertinent to have processes and technology in place to manage your business smartly as you scale, which simplifies the due diligence process for you.

On top of that, great sales reporting with the aid of a CRM system. Besides, do not forget to track the customer and revenue data from an accounting system. 

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