Best AI Prompts for Due Diligence Checklists with ChatGPT

Quick Answer

I recommend using structured AI prompts to generate tailored due diligence checklists, moving beyond generic templates. This approach transforms ChatGPT into a specialized co-pilot that identifies specific legal, financial, and operational risks based on your unique deal context. By mastering the Persona-Context-Task-Format framework, you can accelerate the diligence process and build a bulletproof framework for any venture capital or M&A transaction.

Key Specifications

Revolutionizing Due Diligence with AI

A single overlooked clause in an IP assignment agreement can vaporize millions in value overnight. I’ve seen it happen. In one acquisition I witnessed firsthand, a target company’s failure to properly document the transfer of a key algorithm from a former contractor meant the acquirer didn’t actually own the core product they were buying. The deal didn’t just get renegotiated; it collapsed. This is the razor’s edge you walk on during due diligence. The stakes in venture capital and M&A aren’t just high—they’re existential. Every document, every clause, every signature is a potential landmine.

The traditional method for navigating this minefield? Staring at a generic Excel checklist, trying to remember if you need the “IP Assignment Agreements” or the “Proprietary Information and Inventions Agreements” (PIIAs). It’s a manual, soul-crushing process that’s prone to human error. Worse, it’s inconsistent. The checklist you use for a Series A SaaS company is dangerously inadequate for a hardware manufacturer, yet many firms just copy-paste and hope for the best. This isn’t just inefficient; it’s reckless.

This is where ChatGPT becomes your AI diligence co-pilot. Think of it less as an oracle and more as a hyper-efficient junior analyst who has read every diligence checklist ever written. Its purpose isn’t to replace your judgment but to accelerate the creation of comprehensive, tailored diligence frameworks in minutes, not hours. It helps you build a robust, deal-specific framework that ensures you’re asking the right questions from the very beginning.

In this guide, we’ll give you the playbook to harness this power. You’ll learn how to structure prompts that generate a standard list of documents investors will request, from incorporation papers to complex IP assignments. We’ll provide specific prompt templates for legal, financial, and operational checks, and show you how to refine the AI’s output to build a bulletproof framework for your next deal.

The Anatomy of an Effective Due Diligence Prompt

Why do most founders get a generic, 50-item checklist from AI that feels completely disconnected from their actual business? It’s because they treat the AI like a search engine instead of a junior analyst. A simple command like “Give me a due diligence checklist” is the equivalent of walking into a library and asking the librarian for “a book.” You’ll get a result, but it’s unlikely to be the one you actually need. This approach yields a surface-level, one-size-fits-all list that misses the nuanced risks specific to your industry, stage, or business model. You spend more time deleting irrelevant items than you would have spent building the list from scratch.

The difference between a useless list and a strategic due diligence framework lies in the prompt’s structure. To get a truly valuable output, you need to guide the AI with precision. The most reliable way to do this is by using a proven framework: Persona + Context + Task + Format. This structure transforms the AI from a generic text generator into a specialized tool that understands your specific needs.

Here’s how to break it down:

• Persona: Tell the AI who it should be. Assigning a role, like “You are a Senior VC Associate at a top-tier firm specializing in B2B SaaS,” immediately focuses the model’s knowledge base. It will access information and patterns relevant to that specific expert, prioritizing the right documents and clauses.
• Context: Provide the specifics of your deal. This is the most critical step. Is this a pre-seed round for a mobile app in the EU? A Series B for a biotech firm with significant lab equipment? The context dictates the entire checklist. You must include the industry, business model, funding stage, and any unique operational details.
• Task: Be explicit about what you want. Don’t just ask for a “checklist.” Define its purpose. For example: “Generate a comprehensive due diligence request list an investor would send to a target company. Prioritize legal and IP documents. Flag items that are often points of negotiation for founders.”
• Format: Specify how you want the information presented. A wall of text is hard to work with. Requesting a Markdown table with columns for “Category,” “Document Name,” “Why It’s Important,” and “Founder-Friendly Red Flags” gives you an actionable, organized output you can use immediately.

Incorporating Specific Risk Vectors

A truly expert-level prompt goes beyond the basics and directs the AI to focus on specific risk areas. This is where you move from getting a good checklist to getting a strategic one. Instead of a generic list, you can instruct the AI to hunt for vulnerabilities. For instance, you might add: “Pay special attention to founder equity concentration. Specifically, request documents that reveal vesting schedules, founder share purchase agreements, and any stock option pool formation details.” Or, if you’re in a regulated industry, you would explicitly command: “Focus heavily on regulatory compliance. The checklist must include all necessary permits, licenses, and correspondence with bodies like the FDA, FTC, or relevant data privacy authorities (e.g., GDPR, CCPA documentation).” By naming these risk vectors—founder equity, regulatory compliance, customer concentration, key person risk—you are essentially training the AI to think like an experienced dealmaker who knows exactly where hidden problems often lie.

Your Master Prompt Template

To make this immediately actionable, here is a master prompt template you can copy, paste, and adapt. Simply fill in the bracketed information with your specific details. This is the same structure we use internally to prepare for initial deal reviews, and it will save you hours of manual checklist creation.

Master Prompt Template:

“You are a Senior VC Associate at a top-tier venture firm, specializing in [Your Industry, e.g., FinTech, HealthTech, B2B SaaS]. Your task is to generate a comprehensive due diligence request list for a [Your Funding Stage, e.g., Seed, Series A] investment in a [Your Business Model, e.g., marketplace, subscription software, hardware] company.

Context: The target company is based in [Geography, e.g., Delaware, EU] and has [Number] employees. Key areas of potential risk for this deal include [Specific Risk Vector 1, e.g., founder equity concentration], [Specific Risk Vector 2, e.g., IP assignment for outsourced developers], and [Specific Risk Vector 3, e.g., customer concentration, where top 2 clients represent >40% of revenue].

Task: Generate a detailed request list organized by category (Legal, Financial, IP, Commercial, HR). For each document, provide a brief explanation of why an investor would request it. Crucially, add a third column titled ‘Founder-Friendly Red Flag’ that highlights common issues or non-standard terms a founder should watch out for in that specific document.

Format: Present the entire output as a clean, easy-to-read Markdown table.”

Core Legal & Corporate Governance Checklist Prompts

Ever wonder if the corporate records you’re presenting to a potential investor are truly “clean”? One missing board consent from two years ago or a poorly drafted IP assignment from a contractor can derail a funding round or even invite future litigation. Investors aren’t just investing in your product; they’re investing in your corporate hygiene. A messy corporate history signals a lack of operational discipline, and that’s a major red flag.

This is where you can use AI to build a fortress around your company’s legal foundation. Think of it as a pre-emptive audit. By using the following prompts, you can generate a comprehensive checklist that mirrors what a top-tier law firm would request, allowing you to identify and fix gaps before an investor ever sees them.

Prompt 1: The Corporate Structure Deep Dive

Your goal here is to create a definitive record of your company’s existence and good standing. An investor needs to confirm you are who you say you are, you’re properly registered, and there are no skeletons in your corporate closet. This prompt forces the AI to act as a seasoned corporate lawyer, thinking through every document that establishes your legal lineage.

The Prompt:

“Act as a senior corporate lawyer specializing in venture capital financings. Generate a comprehensive checklist of all documents required to verify the complete corporate history and current good standing of a [Your State, e.g., Delaware] C-Corporation that was incorporated in [Year]. The list must be categorized into ‘Incorporation & Formation,’ ‘Ongoing Governance,’ and ‘Good Standing Certificates.’ For each document, provide a one-sentence explanation of its specific purpose in the due diligence process.”

Why This Works & What to Look For: This prompt provides the AI with a clear role, jurisdiction, and context, ensuring a relevant and detailed output. You should expect to see a list that includes:

• Certificate of Incorporation: The company’s “birth certificate.”
• Bylaws: The rulebook for how the company is governed.
• Board and Stockholder Consents: The paper trail proving that key decisions (like issuing stock, approving the 409A valuation, or entering a major lease) were properly authorized.
• Stock Issuance Records: Proof of who owns what, including the initial issuance to founders.

Golden Nugget Insight: A common oversight is the “Secretary’s Certificate.” Ask the AI to specifically include this. It’s a document that certifies who the current officers and directors are and that the Bylaws attached are the true and correct version. Presenting this proactively shows an investor you sweat the details.

Prompt 2: Founder & Equity Verification

Investors need absolute certainty about who owns the company and under what conditions. Ambiguity here is a deal-killer. This prompt focuses on the cap table, founder agreements, and the critical documents that prove founders are fully committed and that the equity is clean.

The Prompt:

“You are a venture capital analyst performing pre-investment due diligence. Create a detailed list of documents needed to verify founder equity, vesting schedules, and all historical stock issuances for a startup. Your list must specifically cover: 1) The company’s capitalization table (cap table), 2) Founder Stock Purchase Agreements, 3) Vesting Schedules and any acceleration clauses, and 4) Evidence of 83(b) elections for all founders. Explain the critical risk associated with a missing 83(b) election for a founder.”

Why This Works & What to Look For: This prompt targets the most sensitive area of early-stage equity. The AI’s output should emphasize the danger of the 83(b) election. A founder who receives restricted stock (e.g., 10,000 shares at a par value of $0.0001 per share) and fails to file an 83(b) election with the IRS within 30 days faces a catastrophic tax bill on vesting rather than sale. This tax liability can be so high it forces a founder to leave the company. By understanding and documenting this, you show investors you’re a sophisticated operator.

Prompt 3: Material Contracts Review

Beyond your corporate structure, investors need to understand your company’s key obligations and relationships. A “material contract” is any agreement that could significantly impact your business or financials. This prompt helps you build a framework to identify every single one.

The Prompt:

“Act as a corporate counsel reviewing a company for a potential investment. List all categories of ‘material contracts’ that an investor would demand to review during due diligence. Categorize the list into ‘Customer Agreements,’ ‘Vendor & Supplier Contracts,’ ‘Intellectual Property,’ ‘Employment & Consulting,’ and ‘Financing & Debt.’ For each category, provide 2-3 specific examples of the types of agreements that would be considered material.”

Why This Works & What to Look For: The strength of this prompt is its categorization. It forces the AI to think systematically. The output will give you a framework to hunt down these documents within your own company. Look for mentions of:

• Customer: Any contract with a value over a certain threshold (e.g., $50k) or that contains unusual terms like unlimited liability.
• Vendor: Agreements with critical suppliers that could disrupt your operations if terminated.
• IP: Any agreement that touches your core technology, especially with contractors or former employees who aren’t covered by a rock-solid IP assignment.

Actionable Tip: The Gap Analysis

Once you’ve used the prompts above to generate your master checklist, you have one final, crucial step. You need to find what’s missing. This is where you turn the AI from a checklist generator into a risk-hunting partner.

Your Final Command:

“Based on the lists you’ve generated for a [Your Stage, e.g., Series A] round, analyze the following documents I have collected: [Paste your list of documents here]. Flag any missing documents that are commonly required in Series A deals for a [Your Industry] company.”

This final prompt is your safety net. It takes all the context from the previous prompts and applies it directly to your situation, uncovering the gaps that could otherwise cost you time, money, and credibility.

Intellectual Property & Technology Diligence Prompts

Why do investors obsess over your IP? Because it’s the one asset that can be stolen, contested, or accidentally invalidated, destroying your company’s value overnight. A 2023 report from the United States Patent and Trademark Office (USPTO) highlighted that IP-intensive industries account for over 41% of U.S. GDP, underscoring that for most tech startups, your intellectual property is the company. This section moves beyond generic checklists to generate hyper-specific prompts that uncover the most common—and catastrophic—IP risks. We’ll focus on three critical areas: ensuring the company actually owns its code, avoiding the legal minefield of open-source licenses, and understanding the security posture of the technology itself.

Prompt 1: IP Assignment & Ownership Verification

The single most common deal-killer in early-stage tech diligence is a failure to properly document IP assignment. You can have a brilliant product and a hot market, but if a founder wrote the core algorithm while still employed at their previous company, or if a key contractor never signed an invention assignment agreement, that IP doesn’t belong to the startup. It belongs to someone else. This creates a massive liability that can derail an acquisition or a future funding round.

This prompt is designed to generate a forensic-level checklist for verifying that every line of code, every design, and every invention is unequivocally owned by the company. It specifically targets the gaps where IP leakage happens: pre-incorporation work, contractor relationships, and employee contributions.

Prompt:

“Act as a Senior IP Counsel performing due diligence for a Series A investment in a B2B SaaS company. The company has 15 full-time employees and has previously used three separate overseas development agencies.

Your task is to generate a detailed IP ownership verification checklist. The checklist must be structured to uncover common ownership gaps. Specifically, you must create a section for each of the following:

1. Founder IP Contribution: Provide a list of documents to review to confirm all pre-incorporation IP was formally assigned to the company. Include a specific request for the ‘Proprietary Information and Inventions Agreement’ (PIIA) signed by all founders before the company’s incorporation date.
2. Employee IP Assignment: Generate a list of questions to ask the CEO and Head of HR regarding their standard employee onboarding process. The goal is to verify that every single employee, without exception, has signed an PIIA as a condition of employment on Day 1.
3. Contractor & Agency IP Assignment: This is the highest-risk area. Create a specific checklist for reviewing all agreements with past and present contractors and development agencies. The checklist must flag any agreement that lacks a ‘work-for-hire’ clause or a robust ‘assignment of all intellectual property rights’ language. Include a prompt to request a ‘Deed of Assignment’ for any work completed under an older, non-compliant agreement.

Finally, add a ‘Red Flag’ column to your checklist that highlights specific warning signs, such as a contractor agreement that only grants a ‘license’ to use the software instead of full ownership, or a PIIA that is missing a signature or has an incorrect date.”

Prompt 2: Open Source Software (OSS) Compliance

Open-source software is the engine of modern development, but it comes with legal strings attached. Using an OSS component with a “copyleft” license like GNU General Public License (GPL) can create a legal obligation to open-source your own proprietary code. This “license contamination” is a massive red flag for investors, as it can make your core product impossible to sell or defend.

This prompt helps you build a checklist to audit the company’s software dependencies and ensure their OSS usage is compliant and doesn’t pose a future threat.

Prompt:

“You are a technical due diligence analyst. Generate a comprehensive checklist for auditing a software company’s use of open-source libraries and dependencies. The goal is to identify any potential license compliance issues or security vulnerabilities.

Your checklist must include the following action items:

• Request a Software Bill of Materials (SBOM): List this as the primary document to request from the company’s CTO.
• Identify High-Risk Licenses: Create a table of open-source licenses that require special attention. This table must separate ‘Permissive’ licenses (e.g., MIT, Apache 2.0) from ‘Copyleft’ licenses (e.g., GPL, AGPL, LGPL). For each copyleft license, explain the specific risk it poses to the company’s proprietary codebase.
• Audit Process Questions: Formulate a set of questions to ask the engineering team about their internal process for vetting and approving new open-source libraries. Questions should cover: Is there a pre-approved list? Do they use automated scanning tools? Is there a formal review process before a new library is integrated?
• Remediation Plan: Add a section to the checklist that requires the company to provide a plan for addressing any non-compliant or high-risk OSS usage discovered during the audit.”

Prompt 3: Technology Stack & Security Audit

Beyond legal ownership, an investor needs to assess the quality, scalability, and security of the technology itself. A brilliant idea built on a fragile, insecure, or unmaintainable tech stack is a house of cards. This prompt generates a set of questions and document requests that reveal the health and resilience of the company’s technology infrastructure and its commitment to security.

Prompt:

“Act as a CTO and a VC investor simultaneously. Your task is to generate a technology and security diligence checklist for a potential investment in a [Specify Industry, e.g., FinTech, HealthTech] company. This checklist should help an investor assess the technical risk of the investment.

Structure the checklist into three distinct parts:

1. Technology Stack & Architecture Audit:
   • List the key questions to ask the engineering lead about their core technology stack (e.g., programming languages, frameworks, cloud infrastructure).
   • Include a request for a high-level system architecture diagram.
   • Add a specific prompt to ask about their disaster recovery and business continuity plan. What is their Recovery Time Objective (RTO) and Recovery Point Objective (RPO)?
2. Security Policies & Procedures:
   • Generate a list of security policy documents to request, such as: Data Encryption Policy, Access Control Policy, and Employee Security Training Manual.
   • Include a specific request for evidence of any security certifications (e.g., SOC 2 Type II, ISO 27001) or the results of their most recent penetration test.
3. Security Incident History:
   • Formulate a direct question to ask the CTO: “Describe any security incidents, data breaches, or significant downtime experienced by the company in the last 24 months. What was the root cause, and what remediation steps were taken?”

For each item on the checklist, add a brief note explaining why an investor would care about this specific piece of information.”

Financial & Operational Due Diligence Frameworks

So, you’ve cleared the legal hurdles. The term sheet looks clean, and the IP is securely assigned. What’s next? This is where the real story of the business is told—not in legal documents, but in the numbers and the day-to-day operations. Many founders see financial diligence as a simple audit, but for a savvy investor, it’s a forensic examination of the company’s past performance and, more importantly, its future scalability. A single red flag here, like a hidden customer churn problem or an unsustainable burn rate, can sink a deal faster than any questionable liability clause.

This section moves beyond the legal checklist to the core of the business itself: its financial health and its ability to scale. We’ll use targeted AI prompts to generate frameworks that uncover the subtle risks in your financial statements, customer contracts, and team structure. These prompts are designed to help you think like an investor, forcing you to confront the uncomfortable questions before they’re asked in a high-stakes diligence meeting.

Prompt 1: Financial Statement Analysis

An investor’s first question after the term sheet is signed is often, “Show me the money.” But they aren’t just looking at the top-line revenue. They’re dissecting the quality of those earnings, the efficiency of your spending, and the sustainability of your growth. A common mistake founders make is presenting a spreadsheet of numbers without the underlying context. An investor will ask for the audited financials, the revenue recognition policy, and the detailed calculations for your burn rate. If you can’t provide the methodology behind your numbers, you signal a lack of operational maturity.

Here is a prompt designed to generate a comprehensive checklist for reviewing historical financials, forcing you to prepare the context, not just the data.

Prompt:

“You are a Senior Financial Analyst at a venture capital firm. Your task is to generate a detailed checklist for conducting financial due diligence on a [Seed/Series A] B2B SaaS company with approximately [Number] employees and annual revenue of [$X].

The checklist must go beyond a simple request for financial statements. It needs to focus on the underlying quality and sustainability of the financial data.

Structure the checklist into three main categories:

1. Historical Financial Statements & Quality of Earnings:
   • List the specific documents to request for the last 3 fiscal years (e.g., Balance Sheets, Income Statements, Cash Flow Statements).
   • Include a specific request for the company’s revenue recognition policy. Ask for examples of how they apply ASC 606 (or local equivalent) to different contract types (e.g., multi-year deals, professional services).
   • Add a request for an aging report for accounts receivable to identify potential collection issues.
2. Burn Rate & Cash Management:
   • Provide a template for requesting the company’s monthly burn rate for the last 12 months, broken down by category (e.g., R&D, Sales & Marketing, G&A).
   • Include a specific prompt to ask for the calculation methodology for their “net cash burn” versus “gross cash burn.”
   • Add a request for a list of all capital expenditures (CapEx) and any material off-balance-sheet liabilities.
3. Audit & Compliance:
   • Request the most recent audited financial statements (if available) or, if not, the most recent reviewed or compiled statements.
   • Ask for a schedule of any material adjustments made by auditors in the last two years.
   • Include a request for a copy of any management letters from external auditors highlighting internal control weaknesses.

For each item, add a brief explanation of why an investor is requesting it and what specific risk they are trying to mitigate.”

When you run this prompt, the output will be far more than a list of documents. It will be a guide to the story your numbers tell. A key golden nugget to look for in the output is the request for the revenue recognition policy. Many early-stage companies incorrectly recognize revenue upfront for multi-year contracts, artificially inflating their growth metrics. An investor will spot this immediately. By preparing this checklist yourself, you can identify and correct these issues before they become a point of contention, demonstrating financial literacy and transparency.

Prompt 2: Customer & Revenue Concentration

A $5 million revenue stream is impressive until you realize 80% of it comes from a single, unstable client. This is one of the most common and dangerous risks in a startup investment. Revenue concentration creates a massive single point of failure. If that key customer churns, the company’s valuation could collapse overnight. Investors will scrutinize your customer list with surgical precision, looking for churn risk, billing irregularities, and unhealthy dependencies.

This prompt helps you build a framework to analyze your own customer contracts and revenue streams, allowing you to address concentration issues proactively.

Prompt:

“Act as a commercial due diligence specialist. Create a framework for analyzing the customer and revenue concentration of a [B2B SaaS/B2C Marketplace] company.

The framework should be designed to identify churn risk, revenue stability, and billing integrity. Structure the output as a series of investigative steps and data requests.

The framework must cover:

1. Customer Concentration Analysis:
   • Generate a request for a top 10 customer list ranked by revenue contribution for the last 24 months.
   • Include a specific calculation to flag concentration risk: “Calculate the percentage of total revenue represented by the top 1, top 3, and top 5 customers. Flag any customer representing more than 15% of total annual revenue as a high risk.”
   • Ask for a cohort analysis of these top customers, showing their monthly/quarterly spend over time to identify trends (growth, stability, or decline).
2. Customer Contract & Churn Risk:
   • Provide a list of questions to ask about the top 5 customer contracts, including: “What is the contract renewal date?”, “Is there an auto-renewal clause?”, “What are the termination for convenience (TFC) terms?”, and “What is the current Net Revenue Retention (NRR) rate?”
   • Request a churn analysis for the last 24 months, broken down by customer segment (e.g., enterprise vs. SMB) and reason for churn (e.g., budget cuts, product dissatisfaction, competitor).
3. Billing & Revenue Practices:
   • Ask for a sample of invoices and corresponding customer contracts for the top 3 customers to verify billing alignment.
   • Include a request for a schedule of deferred revenue on the balance sheet and an explanation of how it’s managed. This is a key indicator of future revenue and potential billing issues.

For each step, explain the specific financial or operational risk it is designed to uncover.”

The true value of this framework is the golden nugget insight it provides on churn. A founder might be proud of a 95% gross revenue retention, but an investor will immediately ask for the Net Revenue Retention (NRR), which includes upsells from existing customers. An NRR over 100% is the gold standard for SaaS, indicating your existing customer base is growing. If your NRR is below 100%, this prompt will force you to understand why and develop a strategy to fix it before you enter a funding discussion.

Prompt 3: Key Personnel & HR Audit

A startup is its people. The product can be brilliant, the market can be huge, but if the key engineers leave the day after you invest, the company is worthless. This is why the HR audit is a critical, yet often overlooked, part of due diligence. Investors need to verify that the talent they are investing in is legally bound to the company and that the incentive structures are aligned for long-term success. They are looking for ticking time bombs like unvested founders, missing non-compete agreements, or an option pool that’s already empty.

Use this prompt to generate a checklist that ensures your team’s foundation is as solid as your product’s.

Prompt:

“You are an HR and legal diligence expert for a venture capital firm. Generate a comprehensive checklist for auditing the key personnel and HR documentation of a startup with [Number] employees.

The goal is to verify employment stability, ownership of work, and proper equity incentives. The checklist should be organized by risk category.

Checklist Categories:

1. Founder & Key Executive Agreements:
   • List the documents to review: Founder Employment Agreements, Offer Letters for C-level executives.
   • Include a specific request to verify the vesting schedules for all founders (e.g., 4-year vesting with a 1-year cliff).
   • Ask for confirmation that all founders have filed their 83(b) tax elections. This is non-negotiable. A missing 83(b) can create a catastrophic tax event for a founder, potentially forcing them to leave the company.
2. Intellectual Property (IP) Assignment:
   • Request a sample of the company’s standard Proprietary Information and Inventions Agreement (PIIA) or “Invention Assignment Agreement.”
   • Ask for a signed copy of the PIIA from at least one key engineer or product manager from the founding team. This serves as proof that the company actually uses and enforces these agreements.
3. Employee Agreements & Restrictive Covenants:
   • Generate a request for a list of all employees and their signed Offer Letters.
   • Specifically ask for a copy of the company’s standard Non-Disclosure Agreement (NDA) and Non-Compete/Non-Solicit Agreement (if applicable and enforceable in your jurisdiction).
   • Include a request for a summary of any past or pending employee litigation (e.g., wrongful termination, wage disputes).
4. Equity & Option Pool:
   • Request the company’s stock option plan and the total size of the option pool.
   • Ask for a detailed capitalization table (cap table) showing all issued and outstanding options, grants, and warrants.
   • Include a specific question: “What percentage of the fully-diluted option pool is currently unallocated and available for new hires?”

For each item, explain the critical risk an investor is trying to mitigate.”

The golden nugget in this checklist is the explicit request for proof of filed 83(b) elections. This is a deal-killer that many first-time founders miss. An investor will not proceed if the founders’ equity is at risk. By generating this checklist, you are not just gathering documents; you are confirming the legal and operational bedrock of your company. It shows investors that you have built a professional organization where key assets (the people and their IP) are securely tied to the company, giving them confidence that their capital is backing a stable, long-term enterprise.

Advanced Prompts for Red Flags & Scenario Analysis

You’ve built your document checklist. Now comes the most critical question: what are you actually looking for in that mountain of paperwork? A checklist gets you the documents; strategic analysis keeps you from making a catastrophic investment. This is where you elevate your use of AI from a simple administrative assistant to a seasoned risk analyst. By feeding the AI your checklist and asking the right questions, you can simulate the scrutiny of a top-tier VC partner and uncover hidden dangers before they become your problem.

The “Red Flag” Generator: Your AI-Powered Skeptic

Every experienced investor has a mental list of “yellow flags” that turn into “deal-killers” upon closer inspection. You can now task your AI with generating that list for you, tailored to the specific documents you’ve requested. This forces you to confront potential issues head-on, rather than just collecting files and hoping for the best.

The Prompt:

“Act as a skeptical venture capitalist who has been burned by startup investments in the past. I am preparing to review the following documents for a potential investment: [Paste your checklist of documents, e.g., Certificate of Incorporation, Bylaws, Cap Table, Founder Stock Purchase Agreements, IP Assignment Agreements, etc.]. Based only on this list of documents, generate the top 5 red flags I should be looking for. For each red flag, provide a brief explanation of the risk it poses to an investor.”

Why This Works: This prompt’s power lies in its framing. By telling the AI to adopt the persona of a “skeptical VC,” you prime it to prioritize risk and anomaly detection. It won’t just tell you what the documents are; it will tell you what could be wrong with them.

• A “Golden Nugget” Example: When you run this prompt, you might see a red flag like: “Inconsistency in Founder Vesting Schedules.” The AI will explain that if the Founder Stock Purchase Agreements show different vesting start dates or schedules than what is implied in the company’s operational plans, it could signal internal founder disputes or a lack of alignment. This is a subtle detail that a junior analyst might miss, but it can foreshadow major governance problems down the line. Spotting this gives you a concrete issue to raise during founder interviews, demonstrating your attention to detail and uncovering potential team instability before you write a check.

Customizing for Industry Verticals: From Generic to Surgical

A generic checklist for a SaaS company is dangerously inadequate for a biotech startup. The regulatory, intellectual property, and funding landscapes are vastly different. Your AI prompts must reflect these nuances to be truly effective.

The Prompt (Biotech Example):

“Generate a specialized due diligence checklist for an early-stage biotech startup focused on gene therapy. The company is pre-revenue and currently has one lead drug candidate in Phase 2 clinical trials. Your checklist must prioritize documents that verify the integrity of their intellectual property, the validity of their clinical trial data, and their cash runway. Specifically, you must include sections for:

1. FDA Correspondence: All official communication with the FDA, including minutes from pre-IND and end-of-Phase 2 meetings.
2. Patent Portfolio: A detailed list of all patents (issued and pending), focusing on the ‘patent cliff’ risk for their lead candidate and the strength of their Freedom to Operate (FTO) analysis.
3. Clinical Trial Master File (TMF): Confirmation of a complete and audited TMF for their Phase 2 trial.
4. Funding & Runway: A breakdown of all non-dilutive funding (e.g., SBIR/STTR grants) and a detailed cash burn analysis tied to clinical milestones.”

Why This Works: This prompt moves beyond a simple “create a checklist” command. It provides critical context (pre-revenue, Phase 2 trial) that allows the AI to generate a highly relevant and specific list. An investor using this prompt is immediately prepared to ask the tough questions: “Can you walk me through the key takeaways from your last FDA meeting?” or “What is your plan if the FTO analysis reveals a potential infringement?” This level of preparation signals deep industry understanding and separates you from investors who take a one-size-fits-all approach.

The “Missing Document” Probe: Finding the Silence

What an entrepreneur doesn’t show you can be more revealing than what they do. A pristine checklist of provided documents is impressive, but it might be hiding crucial gaps. This meta-prompt turns your AI into an expert auditor to identify what’s missing from the picture.

The Prompt:

“I am conducting due diligence on a [Specify Industry, e.g., FinTech] startup. I have received the following documents from the company: [Paste the list of documents you have received]. Act as a meticulous due diligence analyst. Analyze this list and identify 3-5 critical documents that are conspicuously absent and that a prudent investor would absolutely require before proceeding with a term sheet. For each missing document, explain the specific risk that this omission creates for an investor.”

Why This Works: This prompt forces the AI to think critically about completeness and context. It’s not just checking boxes; it’s evaluating the entire landscape of what a professional data room should contain.

• Real-World Application: You provide a list including the cap table, bylaws, and key customer contracts. The AI might respond with: “Missing: A signed Data Processing Agreement (DPA) with your primary cloud provider.” It will explain that for a FinTech company, the absence of a DPA represents a significant compliance and regulatory risk under frameworks like GDPR or CCPA, potentially leading to massive fines and reputational damage. This single insight could save you from investing in a company with a foundational compliance flaw that would be incredibly expensive to fix later. It’s the kind of question that makes founders realize they are dealing with a sophisticated, experienced investor.

Conclusion: Integrating AI into Your Diligence Workflow

You’ve seen how a single, well-crafted prompt can generate a comprehensive due diligence checklist in seconds. But what separates a novice user from a seasoned investor is understanding what happens after the AI delivers its output. The true power isn’t in blindly accepting the list; it’s in using that list to drive strategic conversations and uncover hidden risks. This is where the real work begins, and it’s a process that demands human expertise.

The Human-in-the-Loop Imperative

Think of your AI as the world’s fastest, most knowledgeable junior analyst. It can pull together every conceivable document request for IP assignments, incorporation papers, and founder equity in under a minute. However, it cannot replace the seasoned judgment of a qualified legal or financial professional. AI is a powerful assistant for drafting and brainstorming, but the final verification and judgment must come from humans. An AI might flag a missing 83(b) election as a risk, but only an experienced attorney can advise on the specific legal ramifications and the best path to remediation. Your role is to use the AI to prepare, not to abdicate responsibility.

From Checklist to Action

The ultimate goal of this workflow is to transform a tedious, time-consuming process into a strategic advantage. By using these structured prompts, you can save dozens of hours that would otherwise be spent manually compiling standard document lists. This efficiency isn’t just about speed; it’s about focus. It frees you to concentrate on high-value analysis—interpreting financial models, assessing market fit, and building stronger relationships with founders. Instead of asking, “Can you send me your cap table?” you can ask, “I see your cap table shows a 10% option pool, but your hiring plan for the next 18 months only allocates 6%. How do you plan to resolve that gap?” This is the difference between a checklist and a conversation.

Your Final Takeaway: Start Iterating

Don’t try to boil the ocean. The most effective way to integrate AI into your diligence workflow is to start small and build momentum.

• Pick one prompt: Choose the one that addresses your biggest current pain point—whether it’s financial red flags, IP risks, or corporate governance.
• Use it on your next deal: Apply it to a real-world scenario and see how it changes your process.
• Iterate and personalize: The initial output is a starting point. Add your own questions, refine the language, and build your own personalized library of AI diligence tools.

The firms that win in the next decade won’t be the ones with the best AI; they’ll be the ones who learn to wield it most effectively. Start building your advantage today.

Expert Insight

Frequently Asked Questions

Q: Why does my AI due diligence checklist feel generic

You are likely using a broad prompt without providing context. AI needs specific details like industry, funding stage, and business model to generate a relevant checklist; otherwise, it defaults to a generic template

Q: How does the Persona-Context-Task-Format framework help

This framework forces the AI to adopt a specific expert role (Persona), understand the deal specifics (Context), perform a precise action (Task), and present the data usefully (Format), resulting in a high-quality, actionable output

Q: Can AI replace human judgment in due diligence

No, AI is a co-pilot, not a replacement. It accelerates the creation of frameworks and identifies standard risks, but the final judgment on complex legal nuances and deal-specific red flags must come from experienced human professionals