Is DD in VC pointless?
Background - I work at a relatively new VC with top quartile returns investing in early-stage venture and growth. Things are great - good WLB and comp. However, it feels like 90% of the DD we do is performative and frankly a waste of time IMO. The fund I worked at prior to this did even more pointless DD (mostly done by MBA interns so they could feel useful). It also had top quartile returns with several high profile exits.
Question - How many hours do deal teams at other VCs spend on DD? Is this DD pointless or am I just reckless? A good chunk of investments in every portfolio are going to fail anyway.
Current Situation - I've been in VC a couple years now and have transitioned to spending more of my time on fostering and nurturing relationships. But, looking back I used to think DD was somewhat important.
Resolution - we're all just degenerate gamblers, why act otherwise? Seriously though, please convince me otherwise. Would love to get some feedback from other VCs, even though I know this forum is heavily skewed to IB/PE.
people do DD in VC? color me surprised.
What would attribute deal success to ? Is it just dumb luck or can you tell at the seed / early stage which deals are hot vs not and success is a function of access to those deals?
These are the key diligence questions you should be answering. Product, market, founder, and financing. Other diligence areas are harder to understand without personal experience or some sort of "edge" (e.g., coaching founder on how they will spend every dollar of the round) but these are all key.
You can't just take meetings and extend founders a TS. It will blow up in your face.
It will blow up in Chase Coleman's face.
All the founders he threw money at are preparing for down rounds when nobody wants to extend them a TS at even 1/4 of the valuation multiple they gave them
Exactly why these guys let SBF slip through the crack
I think going forward after FTX, VCs will have to be a lot more mindful of this. Many founders will have the “fuck off” mentality though. I believe that’s what happened with SBF.
In his case I think they just looked at his CV and we’re amazed and they didn’t properly do the DD.
After series b there’s no excuse to not have FDD vendors
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