In the world of VC funding and fast-growing startups, understanding the mechanics of due diligence can prepare founders with the tools necessary to raise that business-changing (and maybe life-changing) round.
We've analyzed data from across the industry, focusing on three key aspects:
The time required to close a deal
Hours spent on due diligence
And the number of references consulted.
Here are our findings:
Time to Close a Deal:
On average, it takes 83 days to close a deal, from the initial consideration to the final agreement. However, there are significant variations depending on the stage and sector of the investment. Early-stage investments typically close faster (73 days), while late-stage investments take longer (106 days). Sector-wise, software stands out for its efficiency, with an average closing time of 59 days.
Hours Spent on Due Diligence:
The due diligence process is time-intensive, with VC firms spending an average of 118 hours per deal. Again, there's a divergence based on the stage of investment. Early-stage deals require less time (81 hours), while late-stage deals demand more (184 hours). Despite the inherent complexities, software sector deals tend to be more efficient, averaging 76 hours.
Number of References Consulted:
During the due diligence process, an average of 10 references are consulted. The numbers slightly vary depending on the investment stage, with early-stage deals involving 8 references and late-stage deals involving 13.
These data points underscore the nature of the VC investment process, as well as the variation in practices depending on the investment stage and industry. As a founder, it's important to be cognizant of these factors.
The key takeaway here is that preparation and transparency are crucial.
Understanding the dynamics of the investment process can help founders navigate it more effectively, potentially saving significant time and resources.