"This Is a DEAL KILLER": VC's Pre-Seed Due Diligence Checklist, Cap Table, Rule 83B, Founder Equity

Episode notes

In this episode of the Startup Ignition Podcast, hosts John and Tyler Richards dive deep into the world of pre-seed due diligence. They outline the critical checklist they use as venture capitalists to evaluate early-stage companies, providing invaluable insights for founders preparing to fundraise. The discussion covers essential legal and financial structures, including the importance of a C-corp for QSBS benefits, the deal-killing implications of messing up the Rule 83B election, and how to maintain a "clean" cap table. They reveal common red flags like 50/50 founder splits, undocumented equity promises, and misaligned deal terms. Beyond the paperwork, they emphasize the necessity of rigorous business model validation and a deep understanding of the competitive landscape, explaining why a lack of proof is an immediate deal-killer. (00:00:00) The common mistakes that make a pre-seed company uninvestable (00:00:46) The Rule 83B test: How to know if you have the right startup attorney (00:01:00) Why raising too much money at too high a valuation is a nefarious problem (00:03:04) What's the one book every entrepreneur should read?

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