Due diligence is the investigation a buyer, investor, or lender conducts before closing a deal, reviewing financials, legal documents, contracts, and the cap table to confirm the company is what it claims to be before money changes hands.
The scope scales with the deal: a seed investor's diligence might be a quick look at the cap table and a few key metrics, while an acquisition's diligence can mean weeks of lawyers and accountants reviewing every contract, every financial statement, and every potential liability the company carries.
Diligence is also where deals actually die, more often than during negotiation. A term that looked fine on a term sheet can become a dealbreaker once diligence uncovers something (a messy cap table, unassigned IP, inconsistent books) that changes what the buyer or investor is willing to pay, or whether they want the deal at all.
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