Customer Contracts - Swedish Ventures

Customer Contracts in a startup refer to legally binding agreements between the company and its customers, outlining the terms of service, payment obligations, rights, and responsibilities of both parties. These contracts are essential during Due Diligence (DD), as they provide clarity on revenue sources, customer relationships, and potential risks.

Key Aspects of Customer Contracts in Due Diligence

Contract Scope & Terms
o Defines services/products being provided and their usage terms.
o Includes pricing details, payment termsPayment Terms in a startup refer to the agreed conditions under which payments are made or received from customers, suppliers, or service providers. These terms define timelines, methods, and financial obligations to ensure smooth cash flow and financial stability. Key Components of Startup Payment Terms • Payment Due Date & Scheduleo Defines when payments must be made (e.g., net 30, net 60, upfront, installment-based).o Helps maintain predictable cash flow and avoid payment delays. • Accepted Payment Methodso Specifies options such as bank transfers, credit cards, PayPal, cryptocurrencies, checks.o May include rules for international transactions or fees related to payment processing...., renewal periods, and termination clauses.
Revenue Commitments & Payment Structure
o Specifies whether the contract guarantees recurring revenue or one-time payments.
o Investors review contract length, payment schedules, and any deferred revenue risks.
Liability & Risk Protection
o Outlines warranties, indemnification clauses, and customer dispute resolution methods.
o Ensures legal compliance and reduces litigation risks.
Confidentiality & Data Privacy Agreements
o Specifies how customer data is handled, stored, and protected.
o Includes GDPR or industry-specific compliance policies where relevant.
Cancellation & Refund Terms
o Defines refund eligibility, contract breach scenarios, and early termination penalties.
o Investors analyze whether these terms impact financial stability.
Key Customer Dependencies
o Identifies if the startup relies heavily on a few major contracts or has diversified revenue streams.
o Helps assess risks linked to contract loss or renegotiation.
Contract Duration & Renewal Clauses
o Investors check automatic renewal policies vs. fixed-term contracts.
o Long-term agreements provide financial predictability.

Why Customer Contracts Matter in Due Diligence

Ensures Revenue Reliability: Confirms financial health through legally secured earnings.
Identifies Business Risks: Analyzes legal exposure, customer retention, and disputes.
Supports Investment Decisions: Investors assess contract terms before funding or acquisitions.
Strengthens Compliance & Governance: Ensures regulatory adherence in customer relations.

Written by Swedish Ventures, Rolf Olsson. Remarks to this article could be sent to glossary@swedishventures.se

ASO: DD-05-04