Operations
What is due diligence in venture capital?
Quick Answer
Due diligence is the comprehensive investigation a VC firm conducts before investing — covering financials, market, product, team, legal, and customer references. It typically takes 2-6 weeks after a term sheet is signed.
Detailed Answer
Due diligence (DD) is the research and analysis VCs perform to validate an investment opportunity. It happens at two stages: light DD before term sheet (to decide whether to invest) and deep DD after term sheet (to confirm assumptions).
Key areas of VC due diligence:
**Financial DD:** - Revenue, growth rate, unit economics - Cap table review, existing investor terms - Cash position, burn rate, runway - Financial projections and assumptions
**Market DD:** - TAM/SAM/SOM analysis - Competitive landscape - Market timing and trends - Regulatory environment
**Product DD:** - Product demo and architecture review - Technology risk assessment - IP and defensibility - Product roadmap evaluation
**Team DD:** - Founder background checks - Reference calls (6-12 typical) - Team composition and key hires needed - Founder-market fit assessment
**Legal DD:** - Corporate structure and governance - IP ownership and assignments - Material contracts review - Litigation history
**Customer DD:** - Customer reference calls (3-5+) - Usage data and engagement metrics - Churn analysis and retention - NPS or satisfaction data
Timeline: 2-4 weeks for seed, 4-8 weeks for Series A+. Some VCs do "light touch" DD for competitive deals.
Related Questions
The operating system for private capital.
Archstone runs the back office for venture, PE, real estate, and credit funds — LP reporting, capital calls, portfolio tracking, and fund accounting, in one platform. Now in alpha.