Answer from Mark Brandon:
Only the amateur investors I’ve encountered ask this kind of diligence from a founder BEFORE any soft commitment. It’s completely understandable to want to do diligence after a soft commitment, but before money is turned over.
However, you could use this opportunity to do a hard close. So, you should start out by saying “We don’t turn over confidential information until we have reached an official due diligence period. If you sign this document, which allows you a period to do due diligence, then you can have these documents.”
This will help you understand their level of interest. Frankly, if they’re not willing to do this, you’re either spinning your wheels, or worse, you can open up your books to be inspected by everybody under the goddamn sun. I know for a fact that many of my pitch decks and sensitive financial information landed in the hands of my competitors when I sent out stuff willy-nilly. I know better now.