In his opinion piece, Rickard Vernet emphasizes the need for clearer due diligence (DD) practices during startup investments, especially at the seed stage. He argues that traditional DD tends to focus heavily on current assets rather than the growth potential of a company, which is crucial for assessing long-term viability. He identifies key areas of focus for investors, such as validating cap tables, examining intellectual property agreements, and uncovering potential liabilities or conflicts of interest among founders. By asking the right questions, investors can better align their interests with the future potential of the startups they support.
At the seed stage, investors invest based on the company's future potential, not on its current assets or customer base. So DD should focus on risks regarding the former, not the latter.
Limitations to the commercial strategy of the company, or reliance on IP licensed from third parties and/or with unclear ownership, can severely limit the possibilities for the company to grow and expand into new markets.
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