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How one VC takes a unique approach to due diligence

Posted by Grace Townsley

May 26, 2023    |     5-minute read (847 words)

There’s no question, today’s venture capitalists are taking a more cautious approach to investing. In the wake of FTX’s closure, the collapse of Elizabeth Holmes’ Theranos and the loss of over 100,000 tech jobs in 2023 alone, it’s hard to blame them. 

That’s why due diligence, and Kristina Simmons’ comprehensive approach to it, is more important than ever. 

When talking to founders, Simmons goes beyond pitch decks and data reports

In an interview with Fortune, Simmons, a venture capitalist in the human and planet health industry, talked about how meaningful due diligence includes so much more than paperwork. 

In the process of getting to know her potential investment partners, she takes time to understand their values, vision and thought process. Instead of sitting through traditional pitches and presentations, she meets founders where they’re at — at their plant, at home or on the side of the mountain, if necessary. 

She looks for partners who are honest about their projections and opportunities. She vets every reference to make sure the founder isn’t just knowledgeable about their product, but is also pleasant to be around and kind hearted towards their team. And she stress tests every proposed strategy to ensure the founder truly has considered the potential risks and failure points. 

Only if the founder passes her detailed due diligence process will she consider backing their venture. Because, for Simmons, a strong partnership requires a good idea, a strong infrastructure and the willingness to be truly authentic.

How can you apply these insights to your own venture capital efforts?

1. Know your product, target market and industry

How was Sam Bankman-Fried and his company FTX able to raise nearly $2 billion from 80 different investors over the course of just two years? One reason was that he offered a product that was difficult to conceptualize and understand. He was able to convince investors to back his product by using flashy buzzwords and trendy jargon — all while distracting from the disorganization plaguing his back office. 

That vague pitch might have worked for him, at the time, but today’s venture capitalists won’t be as easily fooled. They’re looking for founders who are more function than fluff!

One of the biggest ways you can stand out from other founders in your industry is by knowing more than jargon. Share stats about your target market, projections based on real, irrefutable data, and a detailed analysis of the other players in your field. Prove that your product meets a clear need by showing evidence of demand — sales numbers, social media engagement, and research. 

When you know more than just your own product, investors are more likely to confidently invest in your venture. 

2. Focus on stable growth — not supercharged growth

A few years ago, fast-growing tech companies owned the VC market. But with a potential recession continually looming on the horizon, venture capitalists aren’t looking for rapid and explosive growth that’s hot today and flat tomorrow. Investors want to partner with companies that demonstrate steady and sustainable growth.

That means your startup should focus on building a solid business model, a clear plan for profitability and a careful cash flow management process. With a sustainable model in place and tightly managed expenses, your company can fuel the kind of long-term growth investors can’t wait to contribute to. 

3. Avoid overstatements

Investors are becoming increasingly wary of founders that make too-big-to-be-true claims or promise unrealistic growth. Both can signal a lack of credibility, or a tendency to overpromise and underdeliver. 

Instead, strive to be honest and transparent about your progress, achievements, earnings and growth. 

The more you present a realistic and grounded view of your current state and future growth, the more trust you’ll gain in your industry. And trust can lead to long-term, highly valuable investor partnerships for this venture, and the ones to come. 

4. Keep your word

Investors are constantly on the lookout for founders who are consistently reliable and authentically transparent. Leaders who follow through on their commitments, meet deadlines, prioritize shareholders, and communicate honestly and clearly about their challenges and setbacks catch the attention (and investments!) of venture capitalists.

One way to show your reliability is to set clear expectations from the outset. Tell your potential investors when they can expect to hear from you, what you’ll deliver, and what your overall plan is. Then, if things change, proactively update them on the unfolding situation. This will help you build a strong foundation and a positive track record within VC circles. 

Key takeaway

If you’re seeking funding this year, it’s natural to feel the pressure to impress venture capitalists and secure as much investment as possible. 

But remember, in this uncertain market, investors want more than flashy pitches and trendy buzzwords. They need evidence of a sustainable business model, a clear plan for profitability, and a commitment to acting with honesty and transparency. If you want to partner with knowledgeable, experienced investors, stay grounded, stay focused, and push forward with determination and authenticity. 


Grace Townsley
Grace Townsley

As a professional copywriter in the finance and B2B space, Grace Townsley offers small business leaders big insights—one precisely chosen word at a time. Let's connect!

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