Menu Close

All we are saying is give due diligence a chance in 2023

Looking back, 2022 was quite the year for some investors and not in a good way. Mistakes made in the boom period of the past couple of years led to many write-downs, but the most egregious example of abysmal investing practices this year was FTX, the bankrupt and disgraced crypto exchange.

In fact, while we wrote this, Sam Bankman-Fried, the company’s co-founder, was being extradited from The Bahamas to the U.S. where he faces eight criminal charges. In the past few months, his investors simply watched as the company’s value evaporated from $32 billion to zero in no time flat. Like the rock band Talking Heads, they might well have asked themselves, “Well, how did I get here?”

Well, one big reason was because FOMO often replaced due diligence. For a while, the V in VC appeared to stand for “vibes” — founders’ vibes seemingly became more important than their products.

Unfortunately, FTX is only the latest in this line of failures. We can revisit companies like WeWork and Theranos, or even look to the list of billionaires and wannabes lining up to be part of the $44 billion disaster-in-the-making that Elon Musk’s Twitter investment appears to be. Even Musk himself tried desperately to get out of the deal before finally closing it in October.

According to Axios editor Dan Primack’s Pro Rata newsletter last week, while some investors appear to think Musk has done a reasonable job of reducing costs, others are worried how they’ll explain their involvement to their investment committees. Maybe they should have thought about that before they threw their money at the deal?

This is all indicative of a wider problem in investing these days. We don’t want to paint the entire industry with the same brush, but it is fair to say that some investors stopped being careful because they felt getting in line for the latest shiny thing was a better idea.

Clearly, investing should be about getting to know the team, checking the books (to the extent possible) and ensuring you pressure test the idea. You should never be signing checks because all the cool kids are doing it — that is never a sound approach to investing millions of dollars.

We spoke to a few investors to get an inside look at how due diligence and investing practices have faltered in the recent past, and if investors who may have fallen prey to chasing the next big thing would learn anything from this year’s mega mistakes.

Have we learned anything?

There are several issues at play here, and the venture capitalists we spoke to stressed that some investing firms (and investors) have to start being more disciplined, especially when they’re doling out someone else’s money.

All we are saying is give due diligence a chance in 2023 by Dominic-Madori Davis originally published on TechCrunch

You should never be signing checks because all the cool kids are doing it — that is never a sound approach to doing most things in life, let alone investing millions of dollars.
All we are saying is give due diligence a chance in 2023 by Dominic-Madori Davis originally published on TechCrunch   TechCrunch 

Generated by Feedzy


Innov8 is owned and operated by Rolling Rock Ventures. The information on this website is for general information purposes only. Any information obtained from this website should be reviewed with appropriate parties if there is any concern about the details reported herein. Innov8 is not responsible for its contents, accuracies, and any inaccuracies. Nothing on this site should be construed as professional advice for any individual or situation. This website includes information and content from external sites that is attributed accordingly and is not the intellectual property of Innov8. All feeds ("RSS Feed") and/or their contents contain material which is derived in whole or in part from material supplied by third parties and is protected by national and international copyright and trademark laws. The Site processes all information automatically using automated software without any human intervention or screening. Therefore, the Site is not responsible for any (part) of this content. The copyright of the feeds', including pictures and graphics, and its content belongs to its author or publisher.  Views and statements expressed in the content do not necessarily reflect those of Innov8 or its staff. Care and due diligence has been taken to maintain the accuracy of the information provided on this website. However, neither Innov8 nor the owners, attorneys, management, editorial team or any writers or employees are responsible for its content, errors or any consequences arising from use of the information provided on this website. The Site may modify, suspend, or discontinue any aspect of the RSS Feed at any time, including, without limitation, the availability of any Site content.  The User agrees that all RSS Feeds and news articles are for personal use only and that the User may not resell, lease, license, assign, redistribute or otherwise transfer any portion of the RSS Feed without attribution to the Site and to its originating author. The Site does not represent or warrant that every action taken with regard to your account and related activities in connection with the RSS Feed, including, without limitation, the Site Content, will be lawful in any particular jurisdiction. It is incumbent upon the user to know the laws that pertain to you in your jurisdiction and act lawfully at all times when using the RSS Feed, including, without limitation, the Site Content.  

Close Bitnami banner