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Typically an investment round will involve a rigorous due-diligence process. There will be a data room, and technical, legal, financial, and strategic documenta

Typically an investment round will involve a rigorous due-diligence process. There will be a data room, and technical, legal, financial, and strategic documentation will be shared with the investor(s). I’d expect regulatory concerns to be top of mind with a biotech startup like this. I’m not sure what level of coverage is normal, but it’s not unheard of to ask for a written opinion from a legal firm saying “this business model is legally sound”. In this case it sounds like this was not asked for, and they just took the founders’ word for it. On the other hand worth noting that “taking their word for it” happens to some degree in almost business deals; after all, past a certain point, outright lies will probably land you in jail (or at least with a massive fine). It could be a sloppy DD process was run here, or it could be that this sort of thing happens infrequently enough that it’s not worth applying a fine-toothed comb to every single claim.

tpmx 6y ago
I'm sure e.g. A16Z did a very thorough DD before investing. But, how much time did they invest in following up this company after every year since? Meanwhile, the VC brands were on proud display on the company's website as a mark of trust.
- ybiomepoopthrow 6y ago
  The founders and employees had a lot of meetings with A16Z during the life of the company. They were active on YC communication channels as well
foobiekr 6y ago
I have personally done a lot of DD and I will tell you that, while I am aggressive because I assume people are lying to me and maybe themselves, 99% of the time when I’ve done a tandem DD the other technilogists onvolved basically just feign interest and give a gut feel. I’ve also been on the receiving end of DD and witnessed this. I think you are dramatically overestimating the quality, depth and especially the diligence of that process.
- wjnc 6y ago
  This. One of the more fun things I've done professionally is trying to prepare an after-action report on a deal gone south. Reasonably small deal but 95%+ loss of value. I couldn't even get people to come to a shared baseline factsheet. We've done 10s of deals together, the firm prides itself on openness and is generally relaxed. Even with all the internal memos and external red flag reports in hand, we couldn't get to a shared sense of what happened, let alone if we dropped a ball. Point being: DD is hard even for well-established teams and hindsight is 20/20.
  - pas 6y ago
    Wow, this sounds very interesting, but I simply lack the context to understand this. Could you perhaps explain it a bit? What's and after-action report? How many people you would have needed to agree on said facts? How should one imagine this "couldn't get to a shared sense of what happened"? This means that everyone had their own very detailed theory that then seemed off for the others (because some facts were excluded, interpreted differently, weighted differently by others)?
    - wjnc 6y ago
      What I tried to do was after the loss became clear (let's say 90% of the customers walked, instanteneously and for us: unexpectedly / it's not in SV-tech), create a setting in which all involved could collaborate on a memo for the Board explaining what happened and if we could have reasonably seen it coming and whether we needed changes to our approach. We couldn't get the basic facts straight. One thought what happened was a risk mentioned in legal DD, only we weighed it wrong. Another saw it as being duped by an active competitor. Another was on the told-you-so-all-along train. This is like hours of meetings with people getting their managers on board to prevent things from being written. General large corp hostilities. The fun part is, these are all people from different teams, with different backgrounds. We were and still are working together on multiple transactions, with fun and camaraderie. We just couldn't get the blindfolds off. And that's what leads me to concluding how hard DD is. We've got processess. External advisors. Teams with experience with the work and each other. Then something goes wrong, you try the Challenger-approach and get nowhere.

tpmx 6y ago

I'm sure e.g. A16Z did a very thorough DD before investing. But, how much time did they invest in following up this company after every year since? Meanwhile, the VC brands were on proud display on the company's website as a mark of trust.

ybiomepoopthrow 6y ago
The founders and employees had a lot of meetings with A16Z during the life of the company. They were active on YC communication channels as well

foobiekr 6y ago

I have personally done a lot of DD and I will tell you that, while I am aggressive because I assume people are lying to me and maybe themselves, 99% of the time when I’ve done a tandem DD the other technilogists onvolved basically just feign interest and give a gut feel. I’ve also been on the receiving end of DD and witnessed this. I think you are dramatically overestimating the quality, depth and especially the diligence of that process.

wjnc 6y ago
This. One of the more fun things I've done professionally is trying to prepare an after-action report on a deal gone south. Reasonably small deal but 95%+ loss of value. I couldn't even get people to come to a shared baseline factsheet. We've done 10s of deals together, the firm prides itself on openness and is generally relaxed. Even with all the internal memos and external red flag reports in hand, we couldn't get to a shared sense of what happened, let alone if we dropped a ball. Point being: DD is hard even for well-established teams and hindsight is 20/20.
- pas 6y ago
  Wow, this sounds very interesting, but I simply lack the context to understand this. Could you perhaps explain it a bit? What's and after-action report? How many people you would have needed to agree on said facts? How should one imagine this "couldn't get to a shared sense of what happened"? This means that everyone had their own very detailed theory that then seemed off for the others (because some facts were excluded, interpreted differently, weighted differently by others)?
  - wjnc 6y ago
    What I tried to do was after the loss became clear (let's say 90% of the customers walked, instanteneously and for us: unexpectedly / it's not in SV-tech), create a setting in which all involved could collaborate on a memo for the Board explaining what happened and if we could have reasonably seen it coming and whether we needed changes to our approach. We couldn't get the basic facts straight. One thought what happened was a risk mentioned in legal DD, only we weighed it wrong. Another saw it as being duped by an active competitor. Another was on the told-you-so-all-along train. This is like hours of meetings with people getting their managers on board to prevent things from being written. General large corp hostilities. The fun part is, these are all people from different teams, with different backgrounds. We were and still are working together on multiple transactions, with fun and camaraderie. We just couldn't get the blindfolds off. And that's what leads me to concluding how hard DD is. We've got processess. External advisors. Teams with experience with the work and each other. Then something goes wrong, you try the Challenger-approach and get nowhere.