Red Flags and Warning Signs: What Could Trip Up a Startup during VC Due Diligence (Medium article written by Lauren Epstein)
To secure VC funding, a company must be special — not only having significant positives, but also avoiding serious negatives.
These negatives are often uncovered during due diligence, an exploratory process that VC’s conduct with a company of interest prior to issuing a term sheet.
In general, due diligence is intended to serve two purposes:
1. Assist in building an investment thesis to inform a proposed investment in the company; and
2. Uncover any potential problems.
Trust me — VC’s hope not to find problems. We only dive into the resource- and time-consuming process of due diligence if we are excited about a company. We’re hoping for good news!
However, the reality is that due diligence can reveal problems.
Below is consolidation of some of the main types of red flags and warning signs that can come up during due diligence from the perspective of the team here at OMERS Ventures.
Business Model
A company’s business model is one of the most important components we look at during due diligence. It is also often the source of red flags.
1. Bad U...
