Within 48 hours, the startup world experienced two momentous events: Y Combinator’s biggest Demo Day and the initial exodus of investors from Dispo, a photo-sharing app. Both events, although apparently unrelated, taught us a lot about the importance and difficulty of due diligence in our world today.
As a background, early investors in Dispo distanced themselves from the startup after a key investigation uncovered allegations about co-creator and popular YouTuber David Dobrik. According to the venture capitalists I spoke to, the decision to “sever all ties” with Dispo was unprecedented.
So what is the impact here? It’s a rude awakening to the importance of due diligence. On equity, I argued that the news from Dispo should push venture capitalists to do a more thorough job of investigating the founders in the future. Dobrik’s questionable “jokes” they were always a search away.
Even if one person does not represent an entire company (the Dispo team It looks great, for what it’s worth), investors still went for what their money represented. Fast forward, this event could have a chilling effect on CVs who work with celebrities or influencers. The responsibility seems too great to back a startup led by potentially troublesome people, so stay away or do your homework.
Well, you would think. Ironically, 24 hours after Dispo investors walked away from the startup was YC Demo Day, one of the biggest startup events of the year. My colleague joked that founders no longer just need to figure out how to get into Y Combinator, they need to figure out how to stand out in the lot once they get there. The joking comment underscored a truth about today’s startup funding environment: too noisy to handle.
The noise became free investments. An investor I have an email from a batch company that essentially says, “Thank you for your interest, if you want to invest, here’s a document, no due diligence required.” The startup was valued at $ 100 million. Another investor I spoke with said that a company asked for an investment without complying with the CV.
While these are just anecdotes, I think these presentations are illustrative of the disconnect between the importance of due diligence and the cycle of hype we find ourselves in. As Dispo showed us, it’s great to look into your future partner, support the right startups, and get you the right money. As YC Demo Day showed us, it’s hard to go slow when you can go fast. If money is hanging in front of you, how do you say no?
I don’t have a solution for the disconnect and ultimately change comes down to the spirit of individual investors and founders. But at the very least, this week of extremes brings a dose of reality to startup mania right now.
In the rest of this newsletter, we’ll focus on a five-month-old unicorn and Plaid harmony at the expense of Discord. How can you always find me on Twitter @nmasc_.
‘From launch to unicorn in 5 months’
Pacaso, a startup that wants to make it easier for people to own a second home, has reached a valuation of one billion dollars in just five months. Basically, the startup wants to reinvent timeshares, with the aim of “bringing together a small group of co-owners to buy a part of a single-family home” with year-round access. Mary Ann Azevedo reports.
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This is what you need to know: Proptech unicorns are here to stay. My colleague Eric Eldon wrote on real estate trends, from cohabitation to the rise of suburban-style living.
Departures and Lack of Plaid
Even an old business giant wants to remind you that community is important. Microsoft is reportedly trying to get hold of Discord, in deal negotiations that would value the latter at $ 10 billion. The startup was last valued at $ 7 billion.
Here’s what you need to know: The offer price feels a bit cheap, the Equity trio argue. When considering the fact that Plaid could be valued at almost double or triple what was going to be sold to Visa, one has to wonder if Discord has an antitrust discount that limits its price.
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