How we run diligence, and why we share the notes

Most diligence happens out of sight of the founder. We do it differently, mostly because the alternative is a worse decision made more politely.

There is a version of venture diligence where the firm calls fifteen people, forms a view, and delivers a two-sentence pass. The founder never learns what was said. We think that is a bad trade for everyone.

The customer calls

We ask for six references and we call all of them, plus two we find ourselves. Afterwards we send you what we heard, lightly anonymised. Sometimes it is flattering. More often there is one comment that lands badly and turns out to be the most useful thing in the process.

The working session

Two hours on your hardest open problem, with two partners. No slides. It is the closest approximation we have of what a board meeting will feel like, and it is deliberately two-way. If we are not useful in that room, you should not take our money.

Writing the pass down

When we pass, you get a short memo explaining the reasoning. Founders occasionally push back and once in a while they change our mind. That has led to two investments we would otherwise have missed, which is enough to justify the awkwardness.

The pass memo was more useful than half the term sheets we got that quarter. We fixed the thing they named and raised six weeks later.

This does not scale infinitely, and we know it. It works because we make about twelve investments a year. If we ever make forty, this page will need rewriting, and that is a decision we would rather not make.