You’ve nailed the pitch. Your deck is crisp. The investor nods along.
But then? Diligence hits. And suddenly, your narrative isn’t enough—it needs receipts.
In digital health, due diligence isn’t just a legal formality. It’s where deals get made—or quietly die. Why? Because health tech is not like building the next social app. There’s real-world risk, regulatory complexity, and lives on the line.
Here’s what VCs actually look for during diligence, what red flags raise alarms, and how to prepare so you glide through instead of sweating bullets.
1. The Purpose of Diligence (From the Investor’s Side)
VCs use diligence to answer one fundamental question:
“Is this company as solid as it looks—or is it all slideware and optimism?”
Early-stage investing always involves risk, but healthcare adds additional layers: clinical liability, patient data, regulatory scrutiny, provider adoption hurdles. Diligence helps investors peel back the sheen of the pitch and inspect the scaffolding underneath.
It’s not about finding perfection. It’s about verifying you’ve built on real ground—and can survive scrutiny from regulators, partners, and patients alike.
For Min-Sung Sean Kim and other experienced investors, diligence is often where their intuition about a team is either validated or disproved. If founders embrace the process with clarity, confidence, and transparency? That’s a green flag in itself.
2. The Diligence Buckets (What Gets Inspected—And Why)
Diligence isn’t just lawyers asking for your articles of incorporation. It’s a top-to-bottom audit of your business logic. Here’s what they dive into:
a. Team
Why it matters: Healthcare is complex. Tech teams without domain expertise often build products that are slick—but naïve.
What VCs look for:
- Founders who understand both tech and the healthcare system
- Clinical advisors who are involved beyond just lending their name
- Gaps in team capabilities (e.g. no one with payer/provider experience)
A red flag? A team with no operational healthcare experience trying to sell to hospitals.
b. Product
Why it matters: Investors want to see what’s behind the demo.
What gets reviewed:
- Screenshots, UX flows, or sandbox environments
- The problem/solution logic—is the product solving a real clinical or operational pain point?
- Code ownership: is your IP actually yours, or do contractors control key repos?
- Integration readiness: how easily can this plug into EHRs, billing systems, or provider workflows?
Founders should be able to articulate why the product exists, how it fits into the healthcare stack, and what moat it builds over time.
c. Market & Customers
Why it matters: Every founder says the market is “massive.” VCs want to know: is it reachable?
What they check:
- Your TAM/SAM/SOM breakdown—and whether it’s grounded in real assumptions
- Actual customer engagement: signed contracts, letters of intent, pilots
- Quality of your pipeline—can these prospects convert, or are they vanity logos?
VCs love a big market—but they back founders who know how to enter it. Especially in healthcare, where go-to-market complexity is notoriously underestimated.
d. Clinical & Regulatory Readiness
Why it matters: One wrong claim and you’re in FDA territory. Mishandle data? That’s a HIPAA lawsuit waiting to happen.
What’s evaluated:
- Clinical validation: case studies, pilot results, pre/post data
- Regulatory classification: are you making medical claims that require clearance?
- HIPAA and GDPR compliance: How is data stored, processed, and shared? Do you have BAAs?
- Security posture: SOC2 readiness, vendor management, breach protocols
If your platform touches patient data or nudges clinical decisions, this section becomes make-or-break. Sophisticated investors know the line between health-adjacent and regulated—and will test if you do, too.
e. Financials
Why it matters: Startups burn money. But digital health startups often burn it in complex, multi-stakeholder environments. Investors want to know what they’re fueling.
What they examine:
- Burn rate and historical spend: how much runway do you have left?
- Revenue model clarity: who pays, when, and how scalable is it?
- Forecast assumptions: do they align with how healthcare procurement actually works?
Big red flag? A hockey-stick revenue forecast with no pilots, no payer model, and an untested CPT code.
3. The Red Flags That Sink Deals
Due diligence is survivable—even with some blemishes—if you’re upfront and prepared. But these red flags are harder to recover from:
- Missing or disorganized data room: signals lack of professionalism
- Unrealistic regulatory assumptions: e.g., claiming you don’t need FDA clearance when you clearly do
- Weak retention metrics: lots of installs, few engaged users
- Founders who get defensive: especially when asked about compliance, competition, or traction
- Hand-wavy answers to clinical questions: investors don’t need you to be a doctor—but they want to see intellectual honesty
4. What to Include in Your Data Room (And Why)
A solid data room speeds up the deal and shows you’re ready to operate at the next level. It doesn’t need to be perfect—but it should be intentional.
Minimum requirements:
- Executive summary + clean version of your pitch deck
- Financial model with line-item assumptions
- Legal docs: incorporation, cap table, IP assignments
- Customer pipeline: with status, size, and type
- Product materials: demo videos, product walkthroughs, user flows
- Clinical/regulatory docs: any validation, advisor bios, HIPAA summaries
Pro tip: organize by folder, include last modified dates, and write short intros to each section.
5. Want to Impress? Here’s How
Founders rarely win a deal during diligence—but they can solidify it. Here’s how to go the extra mile:
- Include a recorded product walkthrough (5–7 minutes)
- Add user testimonials or quotes from clinicians
- Include a one-pager visual of your regulatory path and validation roadmap
- Offer sandbox access or a demo account
These extras show maturity—and save time for the investor’s team. Remember, diligence isn’t just for the partner you pitched. It’s for their whole team.
Final Thoughts: Diligence Isn’t a Test—It’s a Trust Check
You’re not being grilled. You’re being evaluated for whether you’re ready to build something real in healthcare.
Strong founders treat diligence like a continuation of the pitch. They bring the same energy, clarity, and confidence. They don’t hide their weak spots—they show how they plan to address them.
If your team can pass clinical, regulatory, and operational scrutiny, you’ve already set yourself apart. In digital health, credibility closes checks.
Want to get even sharper? Pair this with:
He has invested in startups including American Well, Neuronation, Mimi, and most notably mySugr – which was recently acquired by Roche. Min-Sung is also a contributing writer for mediums including TechCrunch and Tech.EU and studied Business Economics at Witten/Herdecke, Harvard, St.Gallen, and in Seoul.