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November 25, 2007

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I just want to note that virtually every key metric for you in due diligence has next to nothing to do with legal due diligence. (Which is, by the way, how it should be for a VC investment.) And yet still, in this day and age, my start-up clients are getting hit with demands for $10-20k depsoits so certain VC's lawyers can perform "Due diligence." You can have clean paper, good documents, great records, and it's not going to take $10-20 k for a lawyer who isn't dyslexic to confirm it for a VC. You wouldn't do this, right?

Hi Suzi,

In the case of pre-revenue start-up, what's to do with respec to legals. In thinking back to the last couple, Tungle comes to immediate mind, it was a review of the incorporation paperwork and prior stockholders agreement. I've never encountered deposits before, all legal fees are capped and come out at closing else both sides eat em.

You are correct, this should not be happening... Bad VC lawyer, bad!

Excellent points on the DD. It's not rocket science but it is surprising how important documentation becomes when you have 48 hours before it's needed. It's just not fun building architecture documents, outlining patents, assembling resumes and dreaming up cash flows in 48 hours. To many start-ups consider the docs to be a sign of weakness, or feel they slow down the company. Frankly, without proper docs you're causing huge harm, especially when you're attempting to grow a company. Nothing sets an initial tone that you have your collective $$it together then being able to produce quality content for common due diligence requirements. Rick, you might want to share a common list of the "asks" in the blog.

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