More On Due Diligence
Upfront Venture partner Mark Suster is one of our favorite sources on Venture Capital.
In a recent post, he takes a very unconventional view and advises founders not to create a data room.
Data rooms are the online folders containing all the startup information needed for VC firms to conduct their audits (also called due diligence.)
The post was written for Founders but it also provides useful advice to VCs who have a tendency to ask too many questions ahead of showing commitment. The two main takeaways are:
- The startup’s detailed information is very sensitive and should be shared only with parties that proved commitment to the deal;
- Term sheets are a good means for Founders to test that commitment.
As you can see in the chart above, in this chart the due diligence (DD) process is split into two steps.
Firstly, the high-level business diligence done by the VC team. Secondly, the more technical audits done by external auditors and lawyers – which generate costs.
What due diligence items do you cover internally? Is asking too much information detriment to the deal dynamic?
💬 Let us know in the Comments section below.
👀 Sources and Additional Material
- Why you should never have a data room — the most counter-intuitive fund-raising advice you’ll ever get
- Twitter thread on DD and term sheets in Australia
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