What Every Biotech Entrepreneur Needs to Know about VC Due Diligence

Abstract

Due diligence, as it applies to venture capital, is actually imprecise. Origins of the term are based in banking case law. Due diligence to the attorney is more of a precise concept. A better term is “homework.†Better indeed, because the burden of this homework weighs far more heavily on the entrepreneur than on the venture capitalist. The odds of getting funded by a venture capital firm are somewhere between 50: and 100: 1. In most instances, the funding goes to companies that already have some connection into the community of venture capital funds. Does this mean that all others need not apply? That is hardly the case. Good venture capitalists know a good opportunity when they see it, but sometimes it is not always obvious. Either the business plan is flawed in strategy, format or content, or the due diligence process reveals a team totally unprepared to fulfill their own vision. Elsewhere in this special edition of JCB is an article on the business plan and the pitch book. This article teaches, in a manner of speaking, how business plans get read and pitches gets heard.