Raising a Series A is a defining milestone for any healthcare startup, but healthcare companies face a unique challenge that consumer tech and SaaS startups do not: regulatory compliance diligence. Experienced healthcare investors will scrutinize your compliance infrastructure during due diligence, and gaps in your regulatory foundation can delay a round, reduce your valuation, or kill a deal entirely. This checklist will help you prepare.
What Healthcare VCs Look for in Due Diligence
Healthcare-focused venture capital firms have seen the consequences of investing in companies with flawed compliance structures. Their legal teams and operating partners will evaluate your company across several regulatory dimensions, and they expect clean answers to hard questions.
- Entity structure -- Is the MSO-PC model properly implemented in every state of operation?
- Clinical governance -- Does the PC have genuine clinical autonomy, or is the MSO calling the shots?
- Regulatory risk -- Are there any pending investigations, complaints, or known compliance gaps?
- Scalability -- Can the current structure support expansion into new states without a complete rebuild?
- Documentation -- Are all agreements, licenses, and compliance policies current and accessible?
Investors do not expect perfection, but they do expect awareness. A founder who can articulate their compliance risks and the plan to address them is far more fundable than one who has not thought about it.
Entity Structure Review
Your entity structure is the foundation that everything else sits on. Before approaching Series A investors, confirm the following:
MSO Entity
- The MSO is properly formed as a C-Corp or LLC (depending on your cap table needs) in a favorable jurisdiction
- The cap table is clean with proper documentation for all equity issuances
- Board governance documents are in order, including bylaws and board consents
- All IP (including the technology platform) is owned by or properly licensed to the MSO
Professional Corporation
- The PC is formed in each state where clinical services are delivered
- The PC is owned by a properly licensed physician in that state
- The PC's articles of incorporation and bylaws comply with state professional corporation statutes
- The PC is current on all state filings, annual reports, and registered agent requirements
MSO-PC Documentation
The contractual relationship between your MSO and PC is the most scrutinized set of documents in healthcare due diligence. Investors and their counsel will review:
- Management Services Agreement (MSA) -- This is your most important document. It must clearly delineate which services the MSO provides, the compensation structure, and the PC's clinical autonomy. A poorly drafted MSA is a red flag that can stall diligence.
- Administrative Services Agreement -- If you have a separate agreement for specific services like billing or HR, ensure it is consistent with the MSA.
- IP License Agreement -- If the MSO licenses technology to the PC, this agreement must be in place and properly priced.
- Stock restriction agreements and put/call options -- These agreements govern what happens to the PC ownership if the physician leaves or is terminated. They must be carefully structured to avoid the appearance that the MSO controls the PC.
HIPAA Compliance
HIPAA compliance is table stakes for any healthcare company. VCs expect to see a mature HIPAA program that includes:
- Written privacy and security policies that are reviewed and updated annually
- A designated Privacy Officer and Security Officer
- Completed risk assessment within the past 12 months
- Business Associate Agreements with all vendors who handle PHI
- Employee training records showing annual HIPAA training completion
- An incident response plan that has been tested or tabletop exercised
- Encryption of PHI at rest and in transit
Common HIPAA Gaps That Delay Fundraising
The most frequent HIPAA issues we see in pre-Series A companies include missing BAAs with cloud infrastructure providers, lack of a formal risk assessment, no documented incident response plan, and inconsistent employee training records. Each of these is fixable, but they take time to address properly. Start at least 60 days before you plan to begin investor conversations.
State Licensing and Regulatory Compliance
Every state where you operate requires specific licenses, registrations, and ongoing compliance activities. Your diligence package should include:
- Active medical licenses for all providers in every state of practice
- State business entity registrations for both the MSO and PC
- Telehealth-specific registrations (some states require separate telehealth registration)
- DEA registrations in each state where controlled substances are prescribed
- State-specific controlled substance licenses where required
Insurance and Risk Management
Finally, investors expect to see appropriate insurance coverage in place. At a minimum, you should have professional liability (malpractice) insurance for all providers, general liability insurance, cyber liability insurance (especially important given HIPAA obligations), directors and officers insurance, and workers' compensation insurance in every state where you have employees.
The best time to get your compliance house in order is before you need to. The second best time is right now. Do not wait until a term sheet is on the table to discover that your MSA needs to be rewritten or your HIPAA program has gaps.
Series A readiness is not just about revenue metrics and growth rates. For healthcare startups, it is equally about demonstrating that your business is built on a compliant foundation that can scale. Approaching this checklist systematically will make your diligence process smoother, faster, and more likely to result in the valuation your company deserves.