Due Diligence in Venture Capital

Another day, another deep dive into VC. This time, I was looking into the process of due diligence for a given investment.

The old phrase, “separating the wheat from the chaff”, means to find out what’s useful, and what isn’t. That’s due diligence in a nutshell — determining if a lead is worth an investor’s time and capital.

In venture capital, this can be broadly broken down into:

• First screening
• Business due diligence
• Legal due diligence

Within business due diligence, investors typically analyse:

• Financials
• Market
• Product
• Business model
• Founder & management team

Each of these has key documents or measures associated with the process. But here’s what founders have said that stands out:

Pre-seed vs. Seed Due Diligence

The amount of documentation required varies wildly. Many documents ideal for the seed stage are simply unavailable at pre-seed, which increases the risk of poor investment. To any VCs among my readers, may I please ask: how do you then conduct reliable pre-seed due diligence?

Due Diligence Checklists

A structured checklist helps guide information discovery on team dynamics, equity distribution, corporate structure, and financials. But at early stages, flexibility is needed to account for missing pieces. Reader: how have you managed successfully navigating those gaps?

Legal Due Diligence Matters

Corporate governance, IP, contracts, employment laws, regulatory compliance, and financial tax due diligence are just a few areas requiring careful review. Consensus is that clarity on the scope of diligence upfront benefits both investors and founders, but power asymmetries and performance pressures may result in cloudier relations.

The range of expertise required

One thing really caught my attention here. Of course, the traditional VC — an MBA finance graduate from a top uni — very much exists, but so much more than just financials make or break an innovation. With the sheer breadth of specialist knowledge — financial, legal, technical, regulatory — no single person can be an expert in everything. So how do investors efficiently manage their knowledge network? Would love to hear any insights into what’s the best operating model for that, and how it could be effectively operationalised.