Due diligence is a moment of feverish activity for startups. Investors’ lawyers need a lot of documents, and the founder usually wants the deal to go through really quickly. 

Have you been involved in a due diligence exercise before? 

This is not an everyday activity, so startup founders will appreciate help here as their teams may lack bandwidth to manage the investment transaction and carry on business as usual at the same time.

You can get such assignments as an external HR consultant when your clients are raising investment.  

There is a special focus on “labour and employment” compliance in any investment transaction. 

At the time of due diligence, the investor’s lawyers will ask for the following items and it will be the responsibility of the HR consultant to procure and provide these in an organised manner: 

1. List of employees with the following details:

• designation, remuneration, date of joining, department, job description. 
• If any person below the age of 18 years employed or engaged by the Company.
• Organisational chart
• Break of the number 
• Detailed break up of (a) permanent employees i.e. officers and staff; (b) temporary employees i.e. contract labour, trainees, apprentices; and (c) retainers.

2. Standard appointment letter for each category of employee and any employment agreement or standing order 

3. A list of key employees, including the secretary, manager, CEO and CFO of the Company, and anyone else entrusted with powers of management and copies of all CXO and key managerial personnel employment agreements, and any non-compete, non-solicit, confidentiality or IP agreements involving employees

4. Copies of consultancy and freelancer agreements 

5. Information about stock option plans, list of employees who have been granted stock options and the grant letter, or profit-sharing agreements

6. All employment booklets, manuals or other literature regarding terms and conditions of employment generally furnished to employees. Policies regarding leave, sabbatical, vacation

7. Sample of any documents signed by employees at the time of Full and Final Settlement and the process 

8. All statutory registrations and renewals under applicable labour laws

9. A copy of the filed returns under applicable labour laws for the past 3 years  

10. Notices for ongoing proceedings or inspections that are received from labour authorities

A full-blown list of items that investors will ask for is provided here.   

An HR manager or even an external HR consultant has the following responsibility in due diligence: 

1. Identify all the documents that pertain to the request of the lawyers and obtain them internally. You may need to supply the document to the internal team of the company or directly send it to the lawyers. 

2. It is not a good idea to miss or omit relevant documents, as it may cost the founders dearly later, unless specifically instructed by the founders. You can supply a few additional documents, but do not miss out on a crucial document. 

3. Do not clarify or give your position on questions which are not clearly answered in the document if the lawyer asks. Always forward this to the CEO/founder with your suggestions and ask them to confirm or modify your stand.   

4. Some documents may not be available directly with HR – in which case you will need to coordinate with the finance, or legal and compliance team. 

5. In some cases, you may realise that certain basic documents are missing. Depending on the timeline available, you may be able to get them in place. Take the initiative to get this done.  

6. Ensure that the data room has appropriate access controls to protect confidentiality of this information. If a data room environment is not being administered, you can suggest and set up one for the company. 

7. Map the documents shared – keep a checklist and progress status for all the documents and not just the employment section. Founders need someone who can diligently manage the transaction – you could win favours, referrals and many paid assignments in future if you do this. 

8. After the diligence is completed, there will be a list of “action points” that you need to take to rectify any gaps. It will be your responsibility as an HR professional if you are working in a company. Make sure that you take those proactively. 

9. You do not need to restrict the compilation of relevant documents and maintenance of the checklist to the HR department alone, but can support all other departments too with this, and they will value it significantly.  

Here’s another bonus idea for you – you can assist startup founders to prepare for such diligence in advance. 

You could call the service an “HR health checkup”. 

It may enable you to identify various other areas of assistance too. 

For example, you could assist them with:   

1. Employer branding
2. Employment agreements and employee handbook preparation
3. Onboarding documentation
4. Plugging any gaps identified in your HR 
5. Implementation of performance management systems and tools like OKRs 

And many others. 

Start with solving one problem, and offer more services as your client builds trust. 

Do you want a step-by-step roadmap to learn how to do this?

Make sure you attend our free, 3-day bootcamp. 

We will also show you how to leverage AI and HR analytics.