Due diligence is for the founders and startups that the VCs aren't that excited about. When the VCs really want something, due diligence, especially the sort you mention, and any sort of business plan / model / etc goes out the window. They'll fall over themselves to get a piece of the action in some hot company in some hot market, even if the founders are total jerks, the company has no real business plan or model, and the long term plans are vague. The startup funding game is all about investing in startups as a financial asset, not in startups as a sustainable business. VCs will put you through the "you need traction" "you need a business plan" "we need lots of due diligence" if they aren't that into you or you're an option vs. an opportunity. Venture capital is a hustle, and you have to know how to play the game. Most startup founders play VC as if they're going to a bank and getting a loan and have to justify everything, when VC investing is really about pattern matching and lots of gut reactions, and VCs are investing in what they believe is a chunk of something that will be worth more in the future. The actual business and startup founders are only the side part of that hustle.
> When the VCs really want something, due diligence, especially the sort you mention, and any sort of business plan / model / etc goes out the window.
Indeed. Post FTX, Sequoia not only scrubbed the hagiography of SBF from their site, they also scrubbed a story about how they went from meeting to funding company in 48 hours. Not sure how much due diligence you can do in that time frame.
"Update: CNET's Caroline McCarthy tweets at us: "Sounds like a good theory, except that a Color exec told me Sequoia's $$ was nearly triple Bain's." So we're back to: HOW DID THIS HAPPEN?"
So Sequoia put in nearly triple what Bain put in. The article was just guessing before the update.
This sounds right. Theranos is a case example - if the investors had hired any independent experts in the technology sector, micro-fluidics for biochemical analysis, they'd have immediately told them that quantitative measurements (i.e. getting blood metabolite levels) at that scale were essentially impossible, although +/- testing (i.e. detection of a virus, or a gene sequence) was more plausible.
Restricting Theranos to +/- testing (STDs and other infectious diseases, maybe some cancer genes) would be FAR less profitable than taking over the blood testing industry, which is probably why Theranos didn't go in that direction. Regardless, even cursory due diligence would have revealed all that.
I've read a lot about the Theranos situation, and it sounds like CVS might be the "survivor" in this case. There are a few references to CVS in Bad Blood and other reports, but CVS wisely didn't say much about what caused them to pass on the offer that Walgreens accepted.
