In search of things new and useful.
When an investor “does work” on a potential investment, it usually means engaging in some form of due diligence.
One of my favorite VC sayings is from an investor that has said that “due diligence is something VC’s do very studiously when they want to kill a deal”.
I’ve often quoted this, half joking, half in truth. Especially in the early stages of investing, it’s super easy to do due diligence to the point where a “no” is obvious. There is always some major flaw in every company, and doing some cursory due diligence usually uncovers this. Too much due diligence creates conservatism which is poison to venture capital.
But as I mentioned in my last post, I’m trying to think more deeply about this these days. We talked about this as a team recently, and the opposite idea emerged. The point of “doing work” as a VC isn’t due diligence. Even the phrase “due diligence” seems to connote a CYA mentality around the work. Uncover all the bad stuff so you don’t make a stupid mistake.
But I’m realizing that being diligent as a VC is quite different. It’s about truth seeking. Or, put differently, identifying changes in markets, technologies, user behavior, etc before it’s obvious to everyone else. But this takes work. Gut alone won’t get you there, because these developments are non-obvious.
The idea of “doing work” to make you more open-minded, not less. Something best done studiously to see opportunities that others miss. There is a place for some due diligence. But more so, I think truth seeking is what “doing work” as a VC is all about.