Startup Technical Diligence Is a Waste of Time
I do technical diligence for a living so I feel like I should chime in.<p>1. Many of my clients are unsophisticated when it comes to technology, regardless of whether they buy a &quot;tech company&quot; or not. Yes this includes both PE and VC clients. When a PE firm makes an investment in a tech company (and take 51+% of the company) they need to be confident the technology will hold up. About 90% of my work is PE, with the other being 10% in VC (mostly Series A +). Believe it or not, many commercially successful companies do not always use &quot;today&#x27;s world of SaaS tools, APIs, and cloud infrastructure&quot;. And even if they do, just because you use AWS doesn&#x27;t mean you&#x27;ve setup a VPC correctly, you have multi-az setup, or sensitive data isn&#x27;t encrypted at rest. These can have potentially costly (i.e. lose customers &#x2F; brand recognition) consequences. (case in point -&gt; <a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=11999712" rel="nofollow">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=11999712</a> )<p>2. If you&#x27;re a VC, and especially an early stage one, then no, due diligence isn&#x27;t necessary. At all in fact (including finance, etc). You&#x27;re thesis isn&#x27;t aligned with careful analysis, it&#x27;s spray and pray, so diligence isn&#x27;t a worthwhile endeavor. I wonder if something prompted the author to write this or if it&#x27;s just a random rambling. I thought it was pretty well understood that doing diligence at the angel&#x2F;seed stage was almost unanimously worthless.<p>3. Tech due diligence at the later stage of VC, if done right, has more to do about scalability of operations and processes then it does about the specific tech. When you put $50M into a company, spending $50k is a pretty good safeguard.<p>4. Tech diligence, by the right partner, could have certainly identified risks at Theranos or uBeam (assuming there are some there), but that&#x27;s precisely what it is - risk. I&#x27;m pretty confident the investors in these companies understand the risk, they simply just don&#x27;t care, because the potential outcome will return their whole fund and some. Do this 10 times and one bet is bound to pay off.<p>5. I always try to remind entrepreneurs, VCs are finance professionals, not tech professionals. While some may have made their way into VC because of their previous technical ability, there are also many who do not. And just like when you stop coding for 6 months and get &quot;rusty&quot;, so do previously technical able VCs who get older and out of touch.