Is the Due Diligence Process Broken?

VC firms receive more than 1,000 proposals for investments each year, and only a few of them will actually make it to an investment. We often talk about due diligence being the crucial part of the process, where deeper investigation into the startup occurs, and check every single detail to make sure it’s worth the investment. Of course, it takes time, sometimes months or even longer for a startup. Can part of this process be faster, simplified, or operationally automated? Let’s discuss that.

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#1

Each fund conducts due diligence differently, meaning there’s no unified standard or even close to it. There’s a lack of clarity in founders’ minds on what exactly will be examined by VCs and at what stage of the dialogue, especially when we’re discussing early-stage startups. On the other hand, VCs look at different things: metrics to consider, how to evaluate teams, criteria, and scoring models are a black box. There’s a shortage of widespread methodologies, or it’s all treated as a ‘trade secret’ in other areas of business where certain standardizations exist.

You can evaluate the quality of a car, a product on the shelf, or medicines, as there are clinical trials and regulatory bodies like the FDA that provide approvals. But how do you evaluate a startup, since there isn’t a clear and open approach, especially when it comes to early-stage companies.

#2

This leads to the second problem, which is that startups are not ready to engage with investors after their initial pitch deck got a green light, to the next step. Simply because nothing in the process is clear except for how to present your 3-minute pitch. At least this part is somewhat standardized. There are many examples of pitches that successful startups have made, and we can learn from. But we all know that a pitch is just the first step in a long and time-consuming fundraising effort.

So going behind the closed doors into investor meetings, a lot of founders find themselves in a situation where they don’t have answers for questions coming their way, their data rooms are far from being complete, each VC tends to have some internal forms and sometimes bias, and things get into complications, larger than founders have time and resources to deal with.

A typical VC will ask over 100 questions during interviews and have several additional information and reference requests before making a final decision.

And because each VC firm tends to have its own approach, founders end up spending way more time adjusting and preparing for due diligence than they should, causing them to prolong the fundraising process and divert their focus from running a business or building a product.

#3

The third point to note is bias. When there’s no standard and no clear, understandable methodologies for evaluating startups, VCs come up with different questions for different founders, depending on their education, experience, gender, background, and so on.

All of this is based on the unique experience and vision of General Partners. If we try to do this now, for example, in the HR market, companies that don’t approach the hiring process systematically or structurally will face significant challenges. Before technology helped solve these issues, hiring was messy, and every company would build its own process, set of criteria, and scoring systems for candidates. Now, instead of manually scrolling through thousands of resumes, HR managers use technology to filter and sort all candidates, allowing for a better match and less time wasted from both sides. We’re not claiming this process is perfect; it has room for improvement, but it feels like early-stage startup due diligence is still sort of a wild west.

Taking best practices and making things more transparent for founders would help create a more efficient and time-effective process for all.

Should some parts of the due diligence process be automated to simplify and expedite the process? This question we recently asked among our LinkedIn community. Check the answers yourself:)

Yes, due diligence should and actually can be partially automated through the use of AI technology and data analysis tools. While some aspects of due diligence, such as assessing the team and evaluating the future opportunity for massive impact, may require human judgment and interaction, other tasks like data scraping, market analysis, benchmarking, competitor landscape, financial forecasting, etc., can be streamlined and accelerated with automation. Additionally, machine learning algorithms can help identify patterns and trends within large datasets, assisting in risk assessment and decision-making.

It seems like VCs invest in innovations but don’t use those tools enough in their own daily practice.

We believe that automation and AI can speed up certain aspects of due diligence, creating much deeper, data-driven decisions, saving time and energy from founders and VC teams to focus on what’s important — the human aspect of things. So, we will be seeing the VC landscape changing and processes becoming more tech-intensive and structured than they are right

#8 questions with Vibranium.VC Founder and GP Zamir Shukho

Let’s talk about inspiration, leadership, luck, and hard work. These are basic elements of every entrepreneur. And we know what we are talking about. We appreciate that our fund has two sides — venture and entrepreneurial, which help us build strong communication not only with our portfolio companies but also with other startups in the Silicon Valley innovation ecosystem.

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We decided to sit down with Zamir Shukho, Vibranium.VC Founder and GP, and talk about his professional background and entrepreneurial journey before establishing Vibranium.VC.

#1. Could you share more about your journey as a serial entrepreneur and how it has influenced your approach to venture capital and investments at Vibranium.VC?

Being an entrepreneur is a very challenging task. On one hand, you have the freedom to work for yourself, but on the other hand, you work all the time, and your work-life balance suffers because when it’s your business, you’re always in the state of being the CEO 24/7. So, I had to learn along the way how to balance things out and make sure I develop myself as a professional not only as a CEO or business owner. This balanced approach helped me to identify operational issues in early-stage startups. Having the experience of building companies myself, I can really relate to what founders are going through, especially when they’re looking for product-market fit.

Being this kind of friendly VC sets the stage for a successful collaboration with founders, especially when they have a choice in selecting an investor for their cap table.

#2. What inspired you to establish Vibranium.VC, and what specific areas or industries are you passionate about when it comes to investing in startups?

For many years, I’ve built accelerators, worked with early-stage companies and large enterprises and their potential customers. I’ve witnessed their journey of product development, piloting those products, and helping them scale within these big companies. I soon realized that I wanted to do more because I was engaged and surrounded by so many talented people. Building a venture fund was the next gradual step, providing additional resources and funding to support startups growth. While the short-term strategy involved creating accelerators for large customers and working with them, the long-term strategy was to invest in potential champions and thrive together with them.

#3. What are the key areas or industries that Vibranium.VC is currently focused on for investment, and how do you see this evolving in the future?

We invest in early-stage SaaS companies, focusing on four key verticals. Firstly, productivity software, whether it’s designed for enterprise-grade solutions or SMBs, anything that can help businesses become more efficient, reduce costs, and better engage with their customers through tools like sales and marketing. The second significant vertical is fintech, where there’s a growing need for more secure, efficient, and quick solutions in the financial sector. The growth potential there is remarkable. The third major area is media and entertainment, particularly in content creation. This is especially true with the advent of new generative AI technologies that are fundamentally changing the way things are created. We find these three areas to be particularly interesting, and our focus is on investing in software companies within these fields.

#4. What specific qualities and skills do you look for in candidates who are applying for roles at Vibranium.VC?

When it comes to the qualities and skills that we seek in describing our current team, I can say that, first of all, devotion is key. People and their desire to help and support startups are vital. This job is not just about finding the right companies and investing money into them; it’s a long-term journey that we will undertake together with our portfolio companies. We want to ensure that the values we share and the vision for the future are also embraced by the startups we work with. So, when it comes to the team, we are looking for individuals with knowledge and experience in working with early-stage companies. Simultaneously, we seek those with a desire to support these companies beyond just the investment stage and work with them on a long-term basis.

#5. With over 1,250 startups having participated in various programs under your leadership, what key lessons or insights have you gained about the startup ecosystem, and how have they shaped your investment strategy?

Working with numerous startups, I’ve observed a common misconception that the notion of 97% of startups failing is not entirely accurate. In our accelerators, we’ve successfully aided founders in pivoting and discovering better models than they initially envisioned. This has resulted in a 60–70% survival rate among these companies, with around 30% of them securing funding immediately after the accelerator.

We’ve come to realize that it’s entirely possible to alter this dynamic by guiding founders to employ proper methodologies such as customer development, Lean Startup principles, and other essential tools.

This proactive approach prevents the unnecessary depletion of resources and enables founders to identify the genuine needs in the market or the right pain points of the customer, facilitating the creation of a product that aligns with those needs.

Through structured programs with methodologies, we’ve witnessed a significant increase in the success rate of these companies. This involves helping founders better engage with their customer base and the market to discover the elusive product-market fit. This learning has substantially contributed to a more successful startup ecosystem.

Transitioning to our investment strategy, it has empowered us to develop a process within our fund. This process enables us to identify potential risks comprehensively, assessing whether founders possess the necessary skill sets and understand how to achieve product-market fit and effectively run their business, beyond merely building the product.

#6. Could you share any specific success stories or standout achievements of startups that Vibranium.VC has supported?

I think it might be a bit premature to make any “loud” statements since we only began investing in the summer of 2022. However, what I can already note is that two of our portfolio companies that received investment last year are now progressing towards their pre-series A and series A rounds.

Despite the economic downturn, most of our portfolio companies continue to grow and demonstrate positive results.

We believe that a some of them definitely will become champions in the future.

As we move forward, we’re starting to witness interesting deals entering the pipeline, and we will announce some investments in the nearest future. We like to talk about our achievements when they really happen, so I’d suggest giving it a bit more time (smiles).

#7. What do you believe sets Vibranium.VC apart from other venture capital firms, and what unique value do you and your team bring to the startups you support?

I believe what sets us apart is, first of all, that we are still entrepreneurs. I’ve had businesses before, so when we communicate with founders, we speak the same language. We understand their hardships and what they’re going through. Our job is not only to invest but also to help them become more investable. Throughout our due diligence process, we assist and consult with them. We explain things and provide honest feedback about what they need to fix, add, or change for investors or VCs to be interested in supporting them with their money.

When it comes to the first stage of the process and going forward, we have this approach where we are a friendly investor always by your side.

We won’t impose our opinion or push our agenda inside the company; instead, we’ll be there when founders need us. If they need our mentorship, advice, or access to our network, we’ll be available. Whenever we see an opportunity for one or a few of our portfolio companies, we’ll proactively send these opportunities their way. This could include other customers, participation in events, free perks, or pitch competitions. We also offer perks from our partners or introduce them to solid investors that we believe could benefit their current fundraising. We actively help by sending contacts and opportunities their way.

Vibranium.VC joined National Venture Capital Association (NVCA) in October 2023, this will give us an opportunity together with other VCs shape industry-influencing policies and regulations, fostering a more favorable environment for venture capital investment and entrepreneurship.

#8. How do you envision the future of Vibranium.VC in terms of growth and the impact it can make on the startup landscape, both locally and globally?

So, we definitely believe in the long term when it comes to venture strategy and our actions. We’ve been in this business for many years, and we want to keep growing as a fund and as a team. We aim to engage with more partners, build programs like SoftLanding program, and help more founders relocate their companies to the United States, specifically to Silicon Valley, to raise money and build global unicorns.

I think our main role here is to be the right cheerleader for startups; they are the main actors on the scene. We see ourselves as coaches, here to support and help them. By having more resources and growing our second fund soon, fundraising, and building stronger teams and networks, we believe we can provide the right support for our champions.

The goal is to find more common ground, all working for the benefit of the companies, which ultimately benefits customers, the general public, and people globally.

Another personal goal of mine is to bring closer together the positions of VCs and startups. I aim to create a better, smoother dialogue between these two groups, helping them engage better and building bridges between them.

Wrapping Up Vibranium.VC’s Softlanding Program 2023

Eleven founders pitched their SaaS startups at Demo Day to experienced investors and key players in the Silicon Valley innovation ecosystem.

The Vibranium.VC Softlanding program is specifically designed for founders looking to move their business to the USA. We carefully chose over 50 early-stage projects from various countries with the aim of helping them achieve this goal. Our program serves as a straightforward guide for relocating businesses and securing funds in the USA, step by step.

Over two months, alongside leading US experts, we delved into crucial aspects of the US relocation process. Topics ranged from maximizing your network’s impact on your company, creating a marketing strategy, to the registration of a legal entity and navigating the visa process.

Meet our finalists:

Besample – Florida-based SaaS online platform connecting researchers with human samples anywhere in the world.

Bank of Memories – SF-based SaaS platform for family heritage and commemoration. 

PicUP – Hybrid voice & digital calling platform revolutionizing enterprise sales calls.


IVM Markets – an AI powered B2B/SaaS seed stage firm in wealth tech. 

HeyEveryone – a web-app that helps startup founders craft and deliver company updates to investors. 

not8 – ultimate product improvement assistant which helps to leave text and video sticky notes right inside the website or application you build.

VTX – a US based sports tech rank data platform that helps athletes to get sponsors, scouts to recruit faster and brands to manage their sponsorship deals accountable. 

Skedway – a Brazilian-based SaaS all-in-one platform that seamlessly manages workplaces, assets and services, helping enterprise companies save millions of dollars annually.

pxCode –  a B2B SaaS platform that revolutionizes web development in the AI era.

Turing Certs – solves identity fraud by cyber tech and digital certificates.

Teknobuilt – unified platform is bringing a paradigm shift in getting people, processes, and data with AI predictive mitigation to boost the productivity of energy and infrastructure projects.

Valentina Pidgaina, Head of pipeline and partnerships at Vibranium.VC: “At the Demo day, we showcased eleven promising companies from various fields, mostly those ready for investments and looking to shift to the  US market to expand their business here. Our program included top experts from Silicon Valley who work closely with startups, and we’re grateful to all our partners for their time, know-how, and the help they offer to founders. We’re looking forward to carrying on with our program next year because we see its worth and success”.

Red Flags Every Startup Should Look Out For While Seeking Investments

Embarking on the journey of securing investment is a crucial step for startups. The right investor not only provides financial backing but serves as a strategic partner in the long run. We often emphasize the need for investors to carefully analyze startups before providing funding, conduct proper Know Your Customer (KYC) checks, and perform detailed due diligence. However, it is equally important for startups to analyze investors before making any commitments. We’ve decided to delve deep into this topic and highlight some red flags that every startup should pay attention to before entering into any agreements with investors.

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Carefully select investors

Investors play a critical role beyond just providing funds. They offer insights, guidance, contacts and support that can significantly impact a startup’s development trajectory.

Picking the right investors is like choosing your team members for a challenging adventure. There should be a certain level of trust.

You want partners who not only bring in funds but also share your vision, connect you with valuable contacts, and offer guidance from their own experiences. It’s about building a lasting relationship. This careful selection process ensures that your startup’s journey is not just financially backed but also enriched with support, wisdom, and genuine collaboration.

Red flags in potential investors

  • Lack of industry knowledge. Investors should possess a solid understanding of the startup’s industry. Red flags may include a general lack of knowledge or disinterest in the specific field the startup operates in. Zamir Shukho, Founder and GP at Vibranium.VC highlights that
    when choosing an investor, it is essential to look at the team and ideally, the team should have some relevant experience, either from the industry or from the startup’s vertical. This is to ensure that the team understands not only how to invest but also how to support the portfolio company further.
  • Unrealistic expectations. Investors with unrealistic expectations can pose a threat. Beware of those setting overly ambitious growth targets, aggressive timelines, or making demands inconsistent with industry norms.
  • Lack of commitment. Investors must be committed to the success of the startup. Signs of concern include minimal involvement, failure to meet commitments, or inconsistent communication. Valentina Pidgaina, Head of pipeline and partnerships at Vibranium. VC puts an emphasis on communication, that should be transparent, honest, and pressure-free for both parties.
  • Poor reputation. Startups also need to do a KYC check. The reputation of an investor speaks volumes. Be cautious if there’s a history of disputes, negative reviews from other entrepreneurs, or a lack of transparency. Also pay attention to media presence. According to Zamir, it is important to obtain reviews from other founders who have interacted with the fund, understanding how they engage, conduct negotiations, and whether they exert extreme pressure on founders, among other things.
  • Focus on short-term gains. Remember, venture is a long-term relationship. Investors solely focused on short-term gains can hinder long-term growth. Watch out for constant pressure for quick returns or a fixation on immediate exit strategies.
  • Don’t have stable funds. If a fund has committed funds, it is crucial to verify their financial status. There are cases where a fund exists on paper but lacks the necessary funds, leading to a waste of time in negotiations.

Let’s talk consequences of ignoring red flags

Choosing an investor without thorough checking may lead to financial strain and loss of control for startups, especially first-time founders . Ignoring red flags can result in misaligned values, reputation damage (this is what you don’t want to face, especially if you are raising), limited growth opportunities, legal issues, and difficulty attracting future investments.

Additionally, it may stifle innovation and hinder the company’s ability to navigate tough times effectively. Proper research and consideration are crucial to avoid these consequences and ensure a successful, sustainable partnership.