An article we liked from Thought Leader Chris Neumann of Panache Ventures:

What is Appropriate VC Diligence?

Founders get a lot of VC due diligence requests during fundraising.

Most are straightforward, some can seem a bit odd and others can feel downright inappropriate. Here are 6 examples of appropriate VC diligence requests and 6 examples that should set off your alarm bells.

Financial Projections

✅ Appropriate: Asking for a Financial Projection

Many early-stage founders don’t understand why investors ask them for financial projections. Surely, if they were “good investors”, they would know that the numbers were pulled out of thin air and that the projections are completely inaccurate.

Of course we do.

The reason why VCs ask for financial projections isn’t because we expect them to be accurate, it’s because they give us insight into how you think. What assumptions are you making about customer acquisition, growth rates and pricing? How reasonable (or unreasonable) are your spending assumptions? And so on.

Ultimately, financial projections serve as an important conversation starter during the diligence process and allow us to better understand how you plan to manage the business (which is, ultimately, what we’re investing in).

🚩 Inappropriate: Asking for Itemized Financial Projections

While high-level financial projections are important to the diligence process, if an investor asks for…

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