When conducting due diligence potential investors will want you to provide them with certain information and will ask you questions about your business. See here for an example of a standard (fairly light-touch) legal due diligence questionnaire.
Investors are also likely to run some financial due diligence and will carefully look through your accounting information. They may also want to conduct some commercially focussed diligence separate to their legal and financial due diligence, asking questions touching on market opportunities and competitors and potentially (on relatively rare occasions and usually for higher value Series A/B+ rounds only) asking to speak to customers.
Generally, you should give as much information as possible to investors when responding to due diligence requests. However, at times the precise amount of information you give away at this stage and/or the way you phrase a particular response to a query, can be an important consideration. Your lawyers can help with this process if needed (and arguably should help!), if there are any areas of particular concern.
You’ll need to refer to documents when responding to due diligence questions. It is best to ensure that all of the company’s documents are well organised in a folder system/data room, with separate folders for different types of documents and ideally all documents should be numbered to allow for easy referencing and indexing – see below for an example of what this kind of structure might look like.
Before sharing information with investors, if you haven’t yet signed a Term Sheet or any form of NDA we would recommend asking the investors to sign up to a standard NDA/confidentially agreement.