In the latest episode of the Understanding VC podcast with Caroline Casson, Partner at VITALIZE Venture Capital, Caroline shares her insights on the critical aspects of due diligence for early stage startups in venture capital. She emphasizes its importance for informed investment decisions and responsible investing. Key takeaways include evaluating the founding team's compatibility, advisors' relevance, and the delicate balance between confidence and arrogance for founders. Caroline also discusses assessing the team's ability to execute, motivation, ownership percentages, and the significance of online background checks. She covers topics like market sizing strategies, financial due diligence, and maintaining transparency with founders. This episode provides a comprehensive guide to the due diligence process for early stage startups in venture capital.
🔍 Timestamps:
[00:01:15] Purpose of Due Diligence: Caroline on the importance of due diligence for informed investment decisions and responsible investing
[00:03:00] Team Evaluation: Starting with the founding team's compatibility, execution ability, and responsiveness
[00:06:00] Advisor Relevance: Listing advisors who genuinely contribute value
[00:07:53] Confidence vs. Arrogance: Balancing self-confidence and avoiding arrogance for founders
[00:09:44] Team's Ability to Execute: Examining past experiences, references, and operational skills
[00:11:26] Team Dynamics and Skills: Assessing teamwork and complementary skills
[00:13:45] Motivation: Evaluating the team's motivation, especially in the early stages
[00:15:00] Ownership Percentage: Considering founder ownership's impact
[00:15:44] Online Background Checks: Basic online checks for red flags
[00:18:09] Professionalism and Responsiveness: Indications of founders' business approach
[00:20:00] Evaluating the Product: Understanding development, data, pricing, and product demos
[00:23:00] Competitive Differentiation: Assessing primary differentiators
[00:25:07] Finding Competitors: Methods for identifying competitors
[00:30:34] Market Sizing Strategies: Caroline's bottom-up approach to market sizing
[00:33:00] Market Size Threshold: Seeking markets greater than a billion dollars
[00:34:40] Timing Matters: Consideration of market growth timing
[00:35:24] Sales and Marketing Due Diligence: Early-stage focus on founder's vision and go-to-market strategy
[00:38:00] Red Flags in Sales and Marketing: Warning signs like high churn rates and unclear strategies
[00:40:38] Financial Due Diligence: Critical financial aspects, including balance sheets and revenue growth
[00:44:49] Financial Projections: Looking for realistic financial projections
[00:45:54] Exit Analysis: Assessing potential returns for fulfilling responsibilities to LPs
[00:49:33] Assessing Milestones: Founders' realistic funding goals
[00:51:26] References: Importance of talking to various references
[00:55:21] Timing of Due Diligence: The duration and starting point for due diligence
[00:58:00] Compromising on Due Diligence: Avoid rushing due diligence
[01:00:13] Challenges with Pre-Seed Due Diligence: Dealing with limited data
[01:02:27] Using Diligence Reports Internally: The role of diligence reports in the process
[01:04:36] Transparency with Founders: Benefits of sharing the diligence process with founders
🌟 About Caroline Casson:
Caroline is a Partner at VITALIZE Venture Capital, a seed stage venture fund that invests in the future of work. As Partner, Caroline spends her time sourcing and evaluating potential investments, managing the firm's diligence process, and supporting portfolio companies.
Prior to joining VITALIZE in 2018, Caroline worked for GE Ventures in San Francisco where she helped incubate and operate a startup in the drone space. Before transitioning into venture capital, Caroline worked in corporate finance for various GE businesses in Chicago, Atlanta, London, and San Francisco.
Caroline received a BBA with honors in math and psychology from Boston College and a Masters of Science in Management from the University of Notre Dame, where she was valedictorian of her class.
