Finding early-stage deals and doing due diligence on them

Finding early-stage deals and doing due diligence on them

Early-stage investors have two jobs that are easy to rush: seeing enough good companies, and checking the ones they like before investing. Part one covers deal flow: where companies come from, building a reputation, and screening. Part two covers due diligence sized to an early-stage cheque, with a document request list and red flags. UK rules come first, with US differences noted.

Risk warning. Early-stage investments are high risk and illiquid. Many young companies fail or return less than was invested (in one widely cited study of US angel groups, 52% of exits were at a loss), shares may be impossible to sell for years, and you can lose all the money you put in. Diligence does not remove that risk; it stops you taking risks you did not know about.

New to this? Start with Angel investing explained; for judging whether a company is worth backing, see How to evaluate an early-stage company.

Where early-stage deals come from

Much of this market is invisible. The British Business Bank's Small Business Equity Tracker 2026 notes that many seed rounds close privately through angel networks and individuals, and cites a UK Business Angels Association (UKBAA) member survey in which 27 angel groups invested £53 million across 321 deals in 2025. Announced seed-stage deals among smaller UK businesses fell 27% in 2025 while seed investment held at £2.1 billion: fewer companies, larger rounds. In the US, the Angel Capital Association's 2026 Angel Funders Report counted $491.3 million of reported angel investment in 2025, up 12%, with groups writing larger cheques into fewer companies.

Source	What you get	Main drawback
Angel networks and syndicates	A lead who screens, negotiates and shares diligence	You rely on someone else's judgement and terms
Accelerator demo days	Many coached companies in one session	Polished pitches, short histories
University spin-outs	Research-based technology, often patented	University licence and equity terms
Crowdfunding platforms	Low minimum tickets, easy access	Terms already set; little influence
Referrals from investors and advisers	Pre-filtered by someone you trust	Only as good as the referrer, and narrow
Public co-investment programmes	Extra capital alongside yours	Eligibility rules, slower processes
Raising boards, including TrustList's	Founders who have said they are raising	Self-reported figures to verify

Angel networks and syndicates

Most UK angels invest alongside others. The British Business Bank and UKBAA's 2018 survey of UK angels found 79% of angel investments were made as part of a syndicate, though the report cautions that the survey was circulated through syndicates, so lone angels are probably under-counted. UKBAA's guidance on the diligence process describes syndicate diligence as shared between members, each taking the areas they know, with a lead investor dealing with the company. The UK Business Angels Association and the US Angel Capital Association list member groups; our angel network rankings compare them.

Accelerator demo days

Accelerators usually end a cohort with a demo day for their investor contacts, as UKBAA's guide to finding investors describes. The companies have been coached for months, and that polish is the catch: a strong pitch can sit on a thin history, so treat demo day as the start of screening. Compare programmes in our accelerator rankings.

University spin-outs

Spin-outs matter to UK deal flow: the British Business Bank's tracker found they were involved in 218 equity deals in 2025, 11% of the total, though a third fewer than in 2024. Angel groups have long sourced deals from university technology licensing offices, the Angel Capital Association's deal-screening guidance notes. The university usually licenses the IP and keeps a stake. The government-commissioned Independent Review of University Spin-out Companies (November 2023) recommended the TenU USIT guide's 10–25% university equity as a starting point for life-sciences spin-outs, and 10% or less for software-type spin-outs; the government accepted all its recommendations.

Crowdfunding platforms

Platforms such as Crowdcube and Republic Europe show rounds to many investors at once. You get breadth, not influence: terms are set before you arrive. In the UK, FCA rules require retail investors to be classed as high net worth, sophisticated or "restricted" (investing no more than 10% of net assets in such investments), and platforms to assess whether the investment is appropriate; the FCA warns there is no Financial Services Compensation Scheme protection. In the US, Regulation Crowdfunding caps a company at $5 million in 12 months, raised online through an SEC-registered broker-dealer or funding portal.

Referrals from other investors and advisers

Referrals remain the main channel. The Angel Capital Association's screening guidance describes a "network of trust": cold plans rarely pass pre-screening, advisers with a track record are credible sources, and a source that sends poor deals gets downgraded. UKBAA tells founders many investors only back businesses referred to them. The weakness is narrowness: you mostly see founders who already know investors.

Public co-investment programmes

Public money often invests alongside private investors rather than instead of them.

• British Business Bank. The Regional Angels Programme invests alongside angel groups to reduce regional imbalances in early-stage equity; to March 2025 it had made 34 commitments through 23 delivery partners (£276 million committed) and supported 775 businesses in 2024/25. Angels take part through its partner syndicates (our listing).
• Innovate UK. Investor Partnerships pairs grants with equity from a pool of venture funds, corporate investors, angel groups and social impact investors selected by an expert panel. Aligned investment must at least match the grant, or be twice it for experimental development (our listing).
• United States. The Treasury's State Small Business Credit Initiative, a nearly $10 billion programme, funds states, territories and Tribal governments to run their own programmes, including equity and venture capital ones (our listing).

Other markets have their own public funders; see our guides to startup funding in India, Pakistan, the UAE and Saudi Arabia.

Raising boards, including TrustList's

On TrustList's Companies raising board, founders publish what they are raising and at what stage, anonymously; their identity stays private until they agree to an introduction. Investors whose firm has a claimed TrustList listing see more, including the amount and use of funds, and can ask for an introduction, which the founder can accept or decline. Nothing is listed until the founder confirms it and TrustList has looked at it, and traction figures are the founder's own unless marked as checked. TrustList does not advise on or arrange investments and takes no part in any round, so part two still applies in full.

Building a reputation founders seek out

Strong companies choose their investors, and check them. Our founders' guide, Checking an investor before you pitch, asks whether a firm writes cheques of their size and how it behaves afterwards; when we read the websites of 5,360 funders in our catalogue, only about one in fifteen stated a cheque size. Ways to stand out:

• Publish your criteria: stage, sector, geography, cheque size, and whether you lead or follow, so founders can select themselves.
• Answer quickly, and say no with a reason. Founders compare notes.
• Invest where you know the industry, and stay involved. In Wiltbank and Boeker's 2007 study of US angel groups, multiples were twice as high where the angel had expertise in the company's industry, and angels who engaged with a company a couple of times a month saw 3.7x against 1.3x for those engaging a couple of times a year. These are old associations, not guarantees.
• Keep your word on terms and timetable, and do not re-price after diligence without new facts.
• Pass good deals on. Referrals run both ways.

Screening quickly

Screening decides which companies earn diligence time. The Angel Capital Association's due diligence guidance suggests a group probably does not want full diligence running on more than one or two deals a month. A short screen:

1. Fit. Stage, sector, geography and cheque size against your criteria.
2. The round. Amount, instrument, valuation or cap, who leads and how much is committed. UKBAA's DealShare platform publishes a hard screen: UK companies past proof of concept, rounds of £100,000 to £5 million, at least 20% committed.
3. The team. Why these people, for this problem.
4. Evidence. What has been shown (paying customers, a working product) and what is still forecast.
5. Tax relief, if it matters to you: has the company got HMRC advance assurance for SEIS or EIS?
6. The deciding question. What single thing would you need to believe to invest? That becomes your first diligence item.

End each screen with one of three outcomes: pass (with the reason sent to the founder), park (with what would change your mind) or proceed.

How much due diligence is proportionate

Time spent checking is associated with better outcomes. In the Wiltbank and Boeker study of 539 angels and 1,137 exits, the median angel spent 20 hours on diligence; investments with above-median diligence returned 5.9x overall against 1.1x below it, and the top quartile, over 40 hours, returned 7.1x. UKBAA cites this research to recommend at least 20 hours.

Your position	A reasonable minimum
Small follower ticket in a led round	Read the lead's diligence notes, ask what was not checked, speak to a founder and a customer, search the public registers
Lead angel or seed fund	All five areas below, with a lawyer reviewing the documents
Taking a board seat	All of the above, plus references on every director

Two cautions. HMRC advance assurance is not an endorsement; HMRC says investors should consider their own due diligence. And warranties are a backstop, not a substitute: claims against founders of a failed company rarely recover much. The model documents of UK Private Capital (formerly the BVCA) are designed for Series A, not seed, so seed terms vary more and need a lawyer's read.

Corporate and legal checks

Incorporation and registers. Companies House shows free officers, filings, charges and insolvency information; check filings are up to date. Since 18 November 2025, identity verification has been a legal requirement for directors and people with significant control; existing directors give their personal code with the next confirmation statement. The PSC register should match the cap table: anyone with more than 25% of shares or votes, or who can appoint or remove a majority of directors, belongs on it. In the US, a company cannot rely on Rule 506(b) or 506(c) if it or a "covered person", such as a director, executive officer or 20% owner, has a disqualifying "bad actor" event; ask how the company checked.

Cap table. Ask for a fully diluted cap table and reconcile it with the company's SH01 notices of share allotments and confirmation statements. Model every SAFE, advance subscription agreement and convertible at conversion, and check the option pool and founder vesting. In the US, founders whose stock vests often make an 83(b) election, which must be filed no later than 30 days after the transfer; ask for proof. Equity management software makes the review easier.

IP assignment. In the UK an employer is first owner of copyright in work an employee makes in the course of employment, but a contractor usually keeps copyright unless a contract says otherwise. Ask for written assignments from founders (especially for work done before incorporation), contractors and agencies. In the US, a contractor's work is a "work made for hire" only in nine listed categories with a signed written agreement, which rarely covers custom software, so assignments matter there too. For spin-outs, read the university licence: scope, royalties, milestones and equity.

Key contracts. Look for change-of-control clauses, exclusivity, most-favoured-customer terms, uncapped liabilities, and grants whose conditions outlive the money.

Employment. Check contracts and right-to-work records: a UK employer faces a civil penalty of up to £60,000 per illegal worker, and US employers must complete Form I-9 for every hire. Check who is paid as a contractor; the IRS judges status on behavioural and financial control and the relationship. UK organisations using personal data must pay the ICO data protection fee unless exempt.

Tax relief. For SEIS or EIS you need the company's compliance certificate (SEIS3 or EIS3) before you can claim; HMRC does not issue it to you.

Financial checks

Bank statements against management accounts. Management accounts are the company's own version; bank statements show what moved. Ask for both for the same months and reconcile them. UKBAA's guidance tells investors to look for "black holes" such as existing debts and late-paid creditors. Watch for revenue booked but not received, tax arrears, undocumented director loans and one-off receipts presented as trading.

Burn and runway. Net burn is cash out minus cash in each month; runway is cash divided by net burn, expressed as a date. The British Business Bank's tracker found the median time between rounds for UK seed-stage companies lengthened from 12.4 months in 2024 to 14.4 months in 2025, so compare runway with how long the next raise may take.

Worked example (an illustration, not a benchmark). A founder says burn is £40,000 a month. Bank statements for the last three months show net outflows of £44,000, £51,000 and £57,000: an average of about £50,700, and rising. With £380,000 in the bank, runway is about 7.5 months at the average, 6.7 at the latest rate. If the company raises £500,000 and plans to burn £80,000 a month after hiring, it has about 11 months, so it must start its next raise soon after closing this one.

Commercial checks

Customer calls. The Angel Capital Association's guidance treats two established customers who confirm they are buying, or will buy, as a good hurdle. Choose them yourself from the full list, including one who left. Ask what problem it solves, what they used before, who approved the purchase, what they pay and whether they will renew. UKBAA adds the market questions: who actually pays, and who the competitors are.

Pipeline quality. Ask for named accounts, stage definitions, expected dates and evidence for each stage. A conversation is not a signed order, and a pilot is not recurring revenue. Ask for revenue by customer and month to see concentration.

Technical checks

UKBAA's technical questions ask whether the technology stands alone or depends on others, whether it must be licensed in, whether it can be protected, and whether it is ready for market. In practice: watch the product work on real data, talk to whoever built it, and check code ownership, open-source licence obligations, security and dependence on one supplier or engineer. Our due diligence checklists for SaaS vendors and processors of personal data work well on the company's own critical suppliers. For deep technology, pay for an independent expert or share the cost across the syndicate.

People checks

The Angel Capital Association's guidance calls management the most important aspect of a deal and recommends checking for litigation, tax liabilities and convictions. UKBAA notes that investors take references, run credit checks and use mutual connections to find a real reference rather than a recommended one; a past failure is no mark against someone who learned from it. Search the disqualified directors register and the Individual Insolvency Register (England and Wales). Rather than digging yourself, ask founders for a basic DBS check, which people working in England and Wales can request about themselves for £21.50; it shows unspent convictions. Tell founders which checks you run, and handle the results lawfully.

Document request list

Founders following our data-room readiness guide will have most of this ready, often in virtual data room software. Scale it to your cheque.

• Corporate: certificate of incorporation; articles; every shareholders' agreement; fully diluted cap table with convertible terms; board and shareholder minutes; option scheme documents.
• Legal: IP assignments from founders, employees and contractors; patent and trade mark filings; licences in, including any university licence; material contracts; litigation; privacy documents.
• Financial: 12 to 24 months of monthly management accounts; bank statements for the same months; latest filed accounts; financial model; loan, grant and lease agreements; tax filings and HMRC correspondence; SEIS or EIS advance assurance.
• Commercial: customer list with revenue by month; pipeline with stages and dates; standard contract and every variant; contacts for customer calls.
• People: organisation chart; employment and contractor agreements; right-to-work records (Form I-9 in the US); founder CVs and referees.

Red flags

• A cap table that does not match Companies House filings, or informal promises of equity.
• Code or designs owned by a founder, contractor or former employer with no written assignment.
• Burn the bank statements do not support, unpaid PAYE or VAT, or undocumented director loans.
• Reluctance to allow customer calls or independent references.
• Pilots or letters of intent presented as recurring revenue.
• Undisclosed litigation, disqualification, insolvency or a US bad-actor event.
• Pressure to commit before diligence is finished.
• Founders who cannot name the weaknesses in their own plan.
• Terms that change after they were agreed.

One red flag is a question; several together are an answer. Browse live rounds on Companies raising; for what founders are told about finding investors, see Who to talk to when you raise.

About this guide. This is general information, not financial, legal or tax advice. TrustList does not arrange or advise on investments. Rules and figures are as published by the linked sources on 26 September 2026; check them, and take professional advice, before you invest.