How to Prepare Contracts for Due Diligence in a Funding Round

What does contract due diligence look at, and why prepare early? When an investor or acquirer runs due diligence, a large part of the work is reading your contracts. They want to know what the company is really committed to, whether its revenue is as solid as the numbers suggest, who owns its intellectual property, and whether any agreement contains a surprise that changes the deal. Contracts are where the promises live, so contracts are where diligence digs. Preparing early matters because problems found in diligence are expensive. A missing signature, a customer contract that lets the customer walk away if you are acquired, or an IP assignment that was never signed can lower the price, delay the close, or kill the deal. Found early, the same issues are usually fixable. Found by the other side's lawyers, they become leverage. Clean, well-organised contracts also signal that the company is well run, which builds trust for everything else in the process. This article is general guidance, not legal advice. A real transaction needs qualified legal and financial advisers. ## Step 1: Build the contract list before the data room Start with a complete list of every contract the deal will touch, grouped by type: - Customer and revenue contracts, especially your largest customers

• Supplier and vendor contracts, especially anything you depend on
• Employment and contractor agreements, including founders
• IP assignments and licences (inbound and outbound)
• Leases and property
• Financing, loans, and security
• Shareholder, investment, and option documents
• Partnership, reseller, and distribution agreements
• NDAs and any settlement agreements A complete list is the foundation. You cannot assess risk in a contract you have forgotten exists. ## Step 2: Hunt for the clauses buyers care about most Diligence reviewers read fast and look for specific clauses. Find them yourself first: - Change of control and assignment. Does a customer or supplier contract let the other side terminate or block the deal if the company changes hands? This is the single most important clause in a funding or sale context.
• Exclusivity and most-favoured-nation terms that limit what the company can do after the deal.
• Termination for convenience, which makes revenue look less secure because a customer can leave on short notice.
• IP ownership and assignment. Confirm every founder, employee, and contractor assigned their work to the company. Missing assignments are a classic deal problem.
• Auto-renewal and notice terms that commit the company further than anyone realised.
• Unusual liability, uncapped indemnities, or guarantees.
• Non-compete and non-solicit terms binding the company or key people. ## Step 3: Check that each contract is complete and valid For every contract in the data room, confirm the basics: - It is the final signed version, signed by someone authorised on both sides
• All schedules, exhibits, and annexes are attached
• Every amendment and side letter is attached and linked to the main contract
• The parties named are the current legal entities, not old names from before a rename or merger
• It is in force and has not quietly expired A signed PDF with a missing schedule is an incomplete contract, and reviewers will flag it. ## Step 4: Organise the data room so reviewers can move fast How you present the contracts affects how smooth diligence feels. Set up the data room to help the reader: - One clear folder structure by contract type
• Consistent file names that say what each document is
• A master index or contract summary that lists each agreement with its parties, dates, renewal, and any notable clause
• Amendments filed with the contracts they change, not in a separate pile A good index lets reviewers answer most questions without opening every file, which speeds the whole process and reduces the follow-up question list. ## Step 5: Fix problems before the other side finds them As you review, you will find issues. Deal with them on your terms: - Get missing signatures and IP assignments signed now, while it is routine, not under deal pressure.
• Seek consents or waivers for change-of-control clauses early, since these can take time.
• Note and explain issues you cannot fix, with a short honest summary, rather than hoping they go unnoticed. Reviewers trust a seller who flags a known issue far more than one who hides it. ## Common mistakes to avoid - An incomplete contract list, so a key agreement surfaces late and derails trust.
• Ignoring change-of-control clauses until the buyer finds them.
• Missing IP assignments from founders or early contractors.
• A messy data room with inconsistent names and detached amendments, which slows everything and signals poor housekeeping.
• Hiding a known problem instead of explaining it, which damages credibility across the whole deal. ## Where a contract workspace helps Diligence prep is a reading job under time pressure: finding every contract, pulling out the parties, dates, renewal and change-of-control terms, confirming each one is signed and complete, and spotting the risky clauses before the other side does. Doing that finding, checking and summarising in one AI workspace tuned to how your company contracts, rather than across a spreadsheet and scattered folders, is what keeps the whole set ready to review in a data room. Adira is one such workspace. You can prepare with a spreadsheet and careful reading; a workspace is what turns the finding, checking and summarising into one connected job.