&gt; So due diligence is happening after they decided to invest, right?<p>Yes, usually this happens after the terms sheet is signed (and for smaller investments after a letter of intent is signed or a handshake deal is agreed upon). Up to that point it is read as true that everything the founder says will check out.<p>The due-diligence process is there for two reasons: to fulfill the &#x27;duty to research&#x27; for a VC to cover their backs in case a deal goes bad after investment and LPs wonder how the hell they got suckered in like that as well as to simply protect the funds.<p>For angels the situation is worse here because they don&#x27;t have the funds or the organization to do this properly.<p>&gt; What about before?<p>Typically a VC has a number of analyists that assess the companies that pitch them to see how solid the various commercial claims are. The accent there is usually on the numbers and the commercial side of things, which is reflected in the education of the associates (typically: finance, accounting and&#x2F;or a bit of legal and commercial).<p>Angels tend to do this part by themselves.<p>Angels and VCs do roughly the same thing, only angels do it earlier on (when the risk is higher, companies are cheaper and the deals are much smaller so they can still participate), the biggest difference is dictated by the size of the deals, it limits the amount of money you can spend in order to determine if you spend it wisely.<p>To make an extreme example: a full legal&#x2F;commercial&#x2F;technical&#x2F;financial dd would cost approximately 100K or so. The bulk of that will be eaten up by the legal portion, the remainder is roughly equally split between the other parts.<p>If you&#x27;re looking to plunk down 100K as an angel <i>if</i> you actually did a full DD you&#x27;d be out 200K if the deal goes through or 100K if it doesn&#x27;t, so then there is no point in doing DD at all. Hence my advice to do an abbreviated one scaled down to a portion of the size of the investment, but to <i>definitely</i> look at all these aspects of the company, if possible through the eyes of an outsider.<p>The other important thing to remember is that doing DD puts a strain on the company you invest in, and if every angel would do a full DD on a company before investing then the company would grind to a halt during their seed round.<p>Yet another note: for seed investments there usually isn&#x27;t a whole lot to verify anyway, the company is still tiny, probably has no turnover (so financial dd becomes: look at the model), has very little technology (so tech becomes: look at the proof of concept) and so on. So everything becomes a lot simpler anyway, it wouldn&#x27;t be possible to do a full process DD on a start-up that has only just become real enough to look for seed funding.