In an investment deal, once the term sheet is signed between the company and the investor, attention shifts to due diligence. Before transaction documents are taken up, a detailed data request is shared with the company, setting the foundation for the rest of the process.
This is where data hygiene matters, whether it can be retrieved, traced, and validated when required.
Retrieval, in turn, depends entirely on how data is stored.
Think of search engines like Google. Searching became easy not because information increased, but because indexing improved. Offline, the same logic applied to libraries.
AI search works on a similar premise.
Due diligence is no different when it comes to data.
Why founders take time to share data?
In early-stage and growth-stage companies, gaps in compliance and documentation are common. That, by itself, is not unusual.
Delays typically arise for a few reasons.
- Data not well organized : Here, even the company find it difficult to sort, collate, and share information in line with a checklist. The effort required to retrieve and structure the data itself becomes a bottleneck.
- Incomplete or inaccurate data: Preparing it takes time. There may also be a tendency to first assess what can pass, what needs fixing, and what might trigger indemnities or become conditions precedent before the round closes. This leads to multiple rounds of back-and-forth.
Worst case: There is also a worst-case scenario, thankfully rare, where something material is being consciously withheld because it could be a deal breaker.
Best case: On the other end of the spectrum, some founders approach this exercise in the right spirit. They are proactive, responsive, and view the DD process as an opportunity to put their house in order. They recognise that this discipline pays off not just for the current round, but for the next, larger and complex one.
When data is shared, but not usable
Even when data is shared on time, usability is not guaranteed.
In our experience, data is often “dumped” without clear labelling, categorisation, or structure. This creates confusion, slows review, and leads to avoidable to-and-fro.
A few examples from recent experience:
- In one case, the entire data room was shared on DocSend. The files were effectively static images, with no search or navigation functionality.
- In another instance, documents were shared partly over email and partly over multiple Google Drives, with new drives created for incremental uploads. Collating information across locations became unnecessarily time-consuming.
- In yet another case, files were not labelled at all. Downloads carried auto-generated names, such as Document (2)” or “Scan_2020,” requiring each document to be opened, understood, renamed, and then placed into appropriate folders.
The other side of the table
Founders often raise valid questions:
- Why is this data required, and what purpose does it serve?
- The previous investor did not ask for this.
- Is this level of diligence necessary for the cheque size?
- Is the investor collecting data for broader market insight?
Some of these questions come from genuine curiosity. Some come from defensiveness or genuine caution. This is understandable.
This is where an open conversation helps.
At Auxano, we take this process seriously and follow it consistently, regardless of cheque size. When founders raise concerns, we explain the intent behind each request, set the context in which the data will be reviewed, and are careful to refrain from asking for unnecessary or duplicative information.
Confidentiality is treated as non-negotiable. Data is shared strictly on a need-to-know basis within the team, often under an NDA. In instances where transactions did not proceed, data was deleted promptly and confirmations were shared.
Trust, after all, works both ways.
Why data hygiene matters
Clean, well-organized data does more than speed up a transaction. It signals seriousness, preparedness, and intent. It shows respect for everyone’s time and creates confidence in how the business is run.
Author,
Mansi Handa
