The end of due diligence during seed investments
SpeedFuning – Angels Den 21 June 2010 – Winsford
Image credit: https://flic.kr/p/8crjfb
Silicon Valley is changing rapidly in many aspects. Today I want to highlight two related trends in the web/tech industry (non-biotech).
- The transformation of high tech, sophisticated companies into something that “just works”.
- This scenario is causing the end of the due diligence process for seed investments as there is no longer anything to dig into anymore; you just have to share a few signup numbers, active users and growth rate. You don’t need more than 2 hours!
10 years ago, companies like Google were running on powerful proprietary technologies. Now, everything has changed. Indeed, the recent rise of New York to prominence is, first and foremost, due to a series of happy accidents. While the technological world was long dominated by hardware and algorithms, the current phase (often referred to as “the social web”) is all about people.
I’m not saying that there are no more heavy tech startups, but today, investors want to take a lower risk. Thus, they prefer to focus on adoption instead of “how powerful a technology could be”.
Obviously there are some exceptions like QWiki, Palantir, Alter-g, dotcloud, etc; but more companies with a social proof will get funded faster and with better terms. Today, it is better to focus on the users instead of the technology; if the technology is essential to attract users, then push on it.
This is pretty interesting for entrepreneurs in general, because they can close a seed round (even $2M) in a few weeks.