Knowing what happens at each stage of a transaction removes much of the uncertainty for founders. Timelines vary, but a typical process from first conversation to closing takes three to six months.
The stages
- Introduction. An exploratory conversation about the business and the founder’s goals.
- NDA. A mutual non-disclosure agreement before confidential information is shared.
- Initial review. The investor reviews three years of financials plus year-to-date and key operating data.
- Indication of interest (IOI). A non-binding letter outlining a valuation range and proposed structure.
- Letter of intent (LOI). A more detailed non-binding agreement on price, structure and key terms, usually with a period of exclusivity.
- Due diligence. Financial (often a quality of earnings report), legal, operational and, in healthcare, regulatory and billing compliance review.
- Definitive agreements and closing. Purchase agreement, employment agreements and the new operating agreement are signed, and funds transfer.
Due diligence document checklist
- Three years of financial statements and tax returns, plus year-to-date
- Monthly profit and loss statements and balance sheets
- Revenue by customer, service line and payer
- Accounts receivable aging and, for healthcare, payer mix and collections data
- Organization chart, employee census and compensation
- Leases, major contracts and vendor agreements
- Corporate records, ownership and cap table
- Licenses, permits and insurance policies
- Litigation history and any regulatory correspondence
- For healthcare: payer contracts, credentialing and coding audits
How to keep the process on track
Organize documents in a secure data room early, assign one internal point person, and engage experienced legal and accounting advisors before the LOI. Speed and responsiveness during diligence protect value.
See how KVLR Capital approaches each step on our investment criteria page.