Risky Business
Published in

Risky Business

Why Due Diligence is Important

Or, how venture capital can go horribly wrong if you don’t do your homework

  • reviewing material contracts
  • talking to channel partners and prospective customers
  • checking management references

I instantly felt my heart in my throat, because I had been so wrong. Instead of protecting our investors and our firm, our “uptight” diligence process and discipline had cost us the opportunity to make a substantial return.

My partner called me as soon as he saw the press release. He was justifiably upset. We couldn’t help ourselves, and we calculated the return we could have provided to our limited partners if the company made that billion-dollar earn out, and our stomachs began to turn. In addition to letting down our investors, we had personally walked away from life-changing money.

“None of the venture capitalists who were in that deal and sold us that startup will ever work with our company in any way again, ever, in their entire careers.”

I will admit that I felt a little vindication, but more than anything I felt relief that the due diligence process we had trusted hadn’t let us down. Venture capital is a long-term game, and our reputations are our most important assets. The startup we “missed” was playing a short term game, trying to make a quick buck, and had squandered the reputation of everyone involved. We had really dodged a bullet by relying on the discipline of due diligence.

If you liked this article, please click 👏 to help others find it.

--

--

Thoughts on corporate VC from the team at Touchdown Ventures, the leading provider of managed venture capital for corporations.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Scott Lenet

Founder of Touchdown Ventures & DFJ Frontier, USC & UCLA adjunct professor, father of twins, Philly sports Phan, Forbes & TechCrunch contributor