When you do diligence on a company, there are several ways to go about it. We have a process. It’s important to remember each deal is different. It’s a unique entity, with unique people. The process is the same, but what you uncover in the process is always different.
I approach diligence really cynically. I have learned over the years to try and look at what could go wrong, what’s not perfect. I try to talk myself out of deals. Usually, there are humps in the road during the diligence process. It gives you something to ruminate over. It might be financial, might be personal. You never know.
There are times when things are just too perfect during the diligence process. When that happens, I get really scared. I try to look for trap doors. I try to figure out what exactly I am missing. How can this screw up? It’s almost the worst kind of diligence when things go swimmingly. Part of the fun is anticipating and solving issues. Asking questions.
This is when having a legal background can be beneficial in venture. Lawyers are trained to look around dark corners. Most lawyers are too risk averse for my taste but when you find one that understands risk/reward, they can be really helpful.
I can remember feeling comfortable in trades and then all hell broke loose. Doing diligence on startups feels the same.