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The Startup Due Diligence Checklist: 47 Questions Before You Build

Verve Intelligence··14 min
The Startup Due Diligence Checklist: 47 Questions Before You Build

What to investigate — and what the answers reveal.

Why Checklists Matter

Atul Gawande's research on checklists in medicine, documented in The Checklist Manifesto, showed that even expert practitioners miss critical steps under pressure. The solution wasn't more training or more experience — it was a systematic list that forced attention to each essential element.

Startup due diligence faces the same challenge. Founders are smart. They work hard. And they systematically miss critical questions because human cognition doesn't naturally surface what's outside the frame.

This checklist covers the 47 questions that professional due diligence examines. It's organized by category, with guidance on what each answer reveals.

A note before you begin: The goal isn't 47 "yes" answers. The goal is accurate answers — including uncomfortable ones. A "no" discovered early costs nothing. A "no" discovered after 18 months costs everything.

Category 1: Market Viability (8 Questions)

Market due diligence determines whether the opportunity is real, appropriately sized, and accessible.

The Questions

1. Can you define your market in one sentence without using "and"? Markets described as "X and Y" are often two markets, each smaller than the combined framing suggests.

2. What's your TAM calculation methodology? "Top-down" (industry reports divided by assumptions) is less reliable than "bottom-up" (number of customers x price they'd pay). If you can't explain how you got to your TAM number, the number is suspect.

3. What percentage of TAM is your realistic SOM in 3-5 years? If your target is more than 5% of a large market, your assumptions need scrutiny. If it's less than 1% of a small market, the ceiling is visible.

4. Is this market growing, stable, or contracting? A shrinking market can still support new entrants, but the dynamics are fundamentally different. Know which game you're playing.

5. What's driving the growth or contraction? Sustainable growth comes from structural shifts (technology, demographics, regulation). Unsustainable growth comes from temporary conditions or hype cycles.

6. Who are the adjacent markets, and are they expanding or contracting into your space? Adjacent markets can become competitors overnight. Google expanding into your space changes the game; you should know the probability.

7. Is this a "winner-take-all" or "fragmented" market structure? Network effects, economies of scale, and switching costs determine market structure. Entering a winner-take-all market late is different from entering a fragmented market.

8. What would have to change in the market for your thesis to be wrong? If you can't articulate what would disprove your market assumptions, you haven't stress-tested them.

What the Answers Reveal

Green flags: Clear market definition, bottom-up TAM methodology, structural growth drivers, honest assessment of competitive dynamics.

Red flags: Fuzzy market boundaries ("everyone is our customer"), top-down TAM only, growth dependent on hype, inability to articulate market structure.

Category 2: Competitive Landscape (7 Questions)

Competition analysis reveals not just who you're competing against, but whether competition is even the right frame.

The Questions

9. Who are your direct competitors, and what do they do well? List at least three. If you can't find three, either you haven't looked hard enough or you're in a space that lacks demand validation.

10. Who are your indirect competitors — different solutions to the same underlying problem? The spreadsheet, the status quo, the "do nothing" option. These are often your real competition.

11. Why would customers switch from existing solutions? Switching costs are real — time, learning curves, data migration, relationship disruption. Your improvement has to exceed these costs.

12. What happens if an incumbent adds your feature? If your entire value proposition can be absorbed by a larger player's one-sprint feature addition, your moat is thin.

13. Who tried this before and failed? The graveyard is data. Predecessors who failed did so for specific reasons. What were they, and why won't you repeat them?

14. Who tried this before and succeeded via pivot? Sometimes adjacent attempts reveal valuable learning. What did they discover, and does your approach incorporate it?

15. What's your defensible differentiation — the thing competitors can't easily copy? Network effects, proprietary data, regulatory barriers, patents, brand, embedded workflows. List your actual moat, not the features that could be copied in six months.

What the Answers Reveal

Green flags: Deep awareness of competitive landscape, clear articulation of switching value, graveyard analysis with specific lessons, defensible moat.

Red flags: "We have no competitors" (either false or concerning), differentiation based solely on features, no graveyard awareness, thin moat.

Category 3: Customer Demand (8 Questions)

Demand validation separates real opportunities from ideas that sound good but don't convert to purchases.

The Questions

16. Have you talked to potential customers about their problem (not your solution)? As Rob Fitzpatrick documents in The Mom Test, talking about your solution invites false positives. Talking about their problem reveals actual behavior.

17. What are customers paying for similar solutions today? Current spending is a better indicator of willingness to pay than hypothetical answers to "would you pay for this?"

18. How do customers currently find solutions to this problem? The discovery path shapes acquisition strategy. If customers don't Google this problem, Google ads won't work.

19. What's the buying process — who decides, who pays, who influences? B2B especially involves multiple stakeholders. If you're selling to users but procurement makes decisions, you have a sales cycle problem.

20. Is this a painkiller or a vitamin? Painkillers solve urgent problems customers will pay to eliminate. Vitamins are nice-to-have improvements that get cut when budgets tighten.

21. How frequently does the customer experience this problem? Daily problems support subscription models. Annual problems support transactional models. Knowing frequency shapes economics.

22. What's the customer's alternative if your product doesn't exist? The alternative isn't "nothing" — it's their current workflow, however suboptimal. You're replacing something, and you should know what.

23. Have you observed (not just asked about) how customers currently solve this? Observed behavior trumps stated preferences. What people say they do and what they actually do often diverge.

What the Answers Reveal

Green flags: Problem-focused conversations, observed behavior, existing spending on alternatives, clear buying process understanding.

Red flags: Solution-focused validation, hypothetical willingness to pay, no observation of current behavior, unclear buying process.

Category 4: Unit Economics (7 Questions)

Unit economics due diligence determines whether the business model works — not in your spreadsheet, but in reality.

The Questions

24. What's your customer acquisition cost (CAC)? If you don't know yet, what's your assumption and what's it based on? Pilot CAC with founder selling to warm networks is typically 20-50% of scale CAC.

25. What's your projected customer lifetime value (LTV)? LTV depends on retention assumptions. What churn rate are you modeling, and where does that number come from?

26. What's your LTV:CAC ratio? Below 3:1 is challenging. Below 1:1 is fatal without a plan to change it. Above 5:1 raises questions about whether you're underinvesting in growth.

27. What's your payback period? How many months until a customer's revenue exceeds their acquisition cost? Payback periods over 18 months require significant capital.

28. What's your gross margin? After direct costs of serving customers, what's left? This determines how much is available for growth, operations, and profit.

29. How do unit economics change at scale? Some costs decrease with scale (infrastructure, negotiating power). Others increase (support, complexity). Which dominates?

30. What's your pricing assumption, and how did you arrive at it? Pricing pulled from intuition vs. pricing based on value analysis and competitor research tells different stories about rigor.

What the Answers Reveal

Green flags: Grounded assumptions with sources, awareness of scale dynamics, realistic payback expectations, pricing based on research.

Red flags: CAC based only on pilot data, churn assumptions without evidence, unclear path to unit economics improvement, pricing from intuition.

Category 5: Execution Feasibility (7 Questions)

Execution due diligence examines whether this team can build this product in this timeframe.

The Questions

31. What's the MVP, and is the scope locked? Scope creep kills timelines. An MVP that "just needs one more feature" isn't an MVP.

32. What are the technical risks — things that might not work? Honest assessment of what's hard. If "nothing is technically risky," either you haven't looked or you're underestimating.

33. What's your timeline, and what assumptions does it rest on? Most startup timelines are 40-50% optimistic. What would have to go perfectly for your timeline to hold?

34. What resources do you need that you don't have? Skills, tools, capital, partnerships. Be specific. Vague resource needs become specific surprises.

35. What third-party dependencies exist? Platforms, APIs, partners, vendors. Each dependency is a risk. What's your fallback if a dependency breaks?

36. What's your burn rate, and how much runway do you have? Runway determines how much time you have to figure it out. Be realistic about burn, including the costs you're planning to add.

37. What's your Plan B if the primary approach doesn't work? A pivot path isn't defeat — it's strategy. Not having one is the problem.

What the Answers Reveal

Green flags: Locked MVP scope, honest technical risk assessment, conservative timeline, identified Plan B.

Red flags: Expanding scope, no acknowledged risks, timeline that assumes perfect execution, no fallback consideration.

Category 6: Regulatory Risk (5 Questions)

Regulatory due diligence surfaces legal, compliance, and policy risks before they become blockers.

The Questions

38. What regulations apply to your business? Industry-specific licensing, data privacy (GDPR, CCPA, COPPA), employment law, financial regulations. The answer "none" is usually wrong.

39. What's the compliance cost? Legal fees, security requirements, reporting obligations, operational constraints. These are real costs that affect unit economics.

40. Are you dependent on any platform policies? App stores, social platforms, payment processors. Policy changes have killed business models overnight.

41. Is regulation in your space evolving? Emerging areas (AI, crypto, gig economy) face regulatory uncertainty. What's the worst-case regulatory scenario?

42. Have you consulted legal counsel? Not "do you plan to" — have you? If not, your regulatory risk assessment is incomplete.

What the Answers Reveal

Green flags: Specific regulatory awareness, estimated compliance costs, legal counsel consulted, platform dependency acknowledged.

Red flags: "No regulations apply," compliance costs not modeled, no legal consultation, platform dependence unacknowledged.

Category 7: Team Capability (5 Questions)

Team due diligence assesses whether these specific people are the right ones for this specific opportunity.

The Questions

43. What relevant experience does the team bring? Not impressive experience — relevant experience. Has this team built similar products, sold to similar customers, or navigated similar challenges?

44. What skills are missing, and what's the plan to fill them? Every team has gaps. Awareness of gaps is more important than absence of them.

45. Have the founders worked together before, under stress? Co-founder conflict is a leading cause of startup failure. Previous collaboration history is informative.

46. What's the team's track record of finishing things? Shipped products, completed projects, seen-through commitments. Starting is easy; finishing is the test.

47. How does the team handle disagreement? This reveals decision-making and conflict resolution. Startups require constant hard decisions. What's the process?

What the Answers Reveal

Green flags: Relevant (not just impressive) experience, acknowledged gaps with plans, prior collaboration, track record of finishing.

Red flags: Experience unrelated to the opportunity, unacknowledged gaps, first-time co-founder pairing, history of abandoned projects.

Using This Checklist

This checklist is a forcing function — a systematic way to surface questions you might otherwise skip.

How to use it:

1. Answer every question in writing. Verbal answers feel complete but often aren't. Writing forces specificity.

2. Mark confidence levels. For each answer: "Know" (evidence-based), "Believe" (reasoned assumption), or "Hope" (speculation). The distribution reveals how much is grounded vs. assumed.

3. Identify the riskiest "Hopes." Where are you speculating on something that could be a kill vector? Those are your research priorities.

4. Seek external verification. Your answers are filtered through your biases. Where possible, validate with independent sources.

5. Revisit periodically. Answers change as you learn. Due diligence isn't a one-time event — it's an ongoing discipline.

The psychology: Daniel Kahneman's research shows that humans overweight the information they have and underweight the information they lack. A checklist counteracts this by forcing attention to categories you might neglect. It's not a guarantee of good judgment — but it's a structure that makes good judgment more likely.

For a deeper explanation of each due diligence area, see our complete startup due diligence guide. To understand how investors apply these same questions, read what VCs look for in due diligence. And for the exact phrasing investors use — plus what each question is really testing — see startup due diligence questions investors actually ask.

Startup Due Diligence Checklist FAQs

What is a startup due diligence checklist? A startup due diligence checklist is a systematic list of questions covering market viability, competition, customer demand, unit economics, execution, regulatory risk, and team capability — used to evaluate a business opportunity before significant investment.

How many questions should a due diligence checklist include? Comprehensive checklists cover 40-50 questions across 7 categories. Fewer questions risk missing critical areas; more questions create checklist fatigue that defeats the purpose.

When should founders use a due diligence checklist? Before significant commitment — before quitting jobs, spending savings, or building for months. The checklist's value is in surfacing problems while they're still cheap to address.

What's the difference between "Know," "Believe," and "Hope" answers? "Know" means you have evidence. "Believe" means you have reasoned assumptions. "Hope" means speculation. Most startup failures come from "Hope" answers to critical questions that turned out wrong.

Can I skip categories that don't apply to my startup? Rarely. Founders often believe certain categories don't apply when they actually do. Regulatory risk, for example, applies to far more businesses than founders assume.

What if I have too many red flags? Red flags aren't automatic disqualifiers — they're risk indicators. Many red flags means high risk. The question is whether the reward justifies the risk and whether the flags are addressable.

References

  • Gawande, Atul. The Checklist Manifesto: How to Get Things Right. Metropolitan Books, 2009.
  • Fitzpatrick, Rob. The Mom Test. 2013.
  • Kahneman, Daniel. Thinking, Fast and Slow. Farrar, Straus and Giroux, 2011.
  • CB Insights. "The Top 20 Reasons Startups Fail."

Verve Intelligence answers all 47 due diligence questions using adversarial AI agents — surfacing risks before you're too deep to act on them. Complete analysis, transparent reasoning, $99. Get your due diligence →