Due Diligence: How Israeli Startups Must Prepare Before Pitching to Foreign Investors

Israel’s startup ecosystem is more vibrant than ever, attracting foreign investment and cross-border funding to fuel its consistent growth. Due Diligence is one of the most critical parts of the process for Israeli startups securing VC investment from US, Europe, Asia and abroad. So every startup must consider its legal, financial, and operational readiness in order to succeed.

What is Due Diligence and Why Does it Matter?

In the startup-investor context, due diligence is the structured process that a potential investor initiates in order to evaluate a startup before making an investment. It is used to validate the claims made by the company in relation to its financial, operational, and revenue generating aspects. It is how information is verified to assure a business is sound, assess risks, and project the possibilities for future financial returns. 

Due diligence is not just a checklist, it’s a deep dive into the foundation of your business and its potential opportunities.

The Israeli Startup Landscape: Common Pitfalls in Due Diligence

There are some common mistakes that many startups make that can pose a red flag in the due diligence process.  

Existing contracts with paying customers should be clear, and not based on informal agreements. Intellectual Property (IP) ownership should be in accordance with all legal processes. There should be no missing financial documentation or messy Cap Table. Dual compliance issues should be resolved to meet regulatory standards of all markets where the company is operating, and the necessary entities should exist where required.

8 Key Areas Where Israeli Startups Must Prepare 

1.  Legal Documentation - Articles of incorporation, founder agreements, NDAs, IP assignments. 

2. Financials & Projections - 2 to 3 years of audited or clean books, burn rate clarity, forecasts.

3. Intellectual Property (IP) - IP ownership clearly documented under the company.

4. Cap Table & Equity Records - Transparent ownership structure, ESOPs, convertible notes.

5. Product & Tech Due Diligence - Product roadmap, scalability, tech stack, dev documentation.

6. Commercial Contracts -  Client agreements, revenue pipelines, vendor contracts.

7. HR & Employment Records - Employment contracts, consultants, stock option agreements.

8. Compliance & Taxes - Israeli tax filings, VAT, Delaware registration (if applicable).

How to Build a Data Room

A Data Room is a secure, centralized online area where all the documents are organized and available for review. It typically contains all the official records and documents. The purpose of a data room is to streamline access so that investors can easily review documents in a secure, centralized, and confidential place. It offers transparency and support to the company’s claims.

Often startups use tools like Google Drive, Notion, DocSend, or Dropbox to organize their files like a library. It’s recommended to sort items by category with easy access for investors. And frequently update what is saved there so that you are always investor ready.

When and How to Start the Due Diligence Process

We suggest that startups start to prepare themselves before there is a term sheet, in order to gain investor trust. Work with a CFO, accountant, or consulting firm with global expertise and be proactive in advance, not reactive to requests.

Start to prepare for due diligence the moment you decide to raise funding. Don’t wait for investors to ask.

Get Expert Help to Navigate Due Diligence

We at SZ Shvarts Zedkia offer services to startups in preparation for the Due Diligence process. We have heavy cross-border expertise (especially in Israel + US), so we can help you anticipate the obstacles and where there might be higher sensitivity to liability and risk exposure.

Ready to impress investors? Reach out for support on your Due Diligence process.