Within 48 hours, the world of startups experienced two important events: the biggest Demo Day of Y Combinator and the initial exodus of investors from Dispo, a photo sharing application. Both events, although apparently unrelated, have taught us a great deal about the importance and difficulty of due diligence in our current world.
For the record, Dispo’s early investors distanced themselves from the beginning after a major investigation revealed allegations about the co-creator and popular YouTuber, David Dobrik. According to the venture capitalists I spoke with, the move to “cut all ties” with Dispo was unprecedented.
What is the impact here? It is a rude awakening to the importance of due diligence. On Equity, I argued that Dispo’s news should encourage venture capitalists to do a more thorough job of verifying the founders in the future. Dobrik’s Questionable “pranks” they were always within reach of a search.
Even if one person does not represent the entire company (Dispo team look great, for what it’s worth), investors still left because of what their money represented. Moving forward, this event can have a frightening effect on VCs who work with celebrities or influencers. The responsibility seems too great to support a startup led by potentially troubled individuals, so stay away or do your homework.
Well, you would think. Ironically, 24 hours after Dispo’s investors gave up on the startup, YC Demo Day took place, one of the landmark startup events of the year. My colleague joked that the founders no longer need to simply figure out how to get into Y Combinator – they need to figure out how to stand out on the lot once they get there. The comment, made in jest, underscored a truth about the current startup finance environment: too noisy to deal with.
The noise has turned into free investments. An investor I received an email from a batch company saying essentially: “Thank you for your interest, if you want to invest, here is a document, due diligence is not necessary.” The startup was valued at $ 100 million. Another investor with whom I spoke said that a company asked for an investment without meeting the VC.
Although they are just anecdotes, I think these arguments are illustrative of the disconnect between the importance of due diligence and the hype cycle we are in. As Dispo showed us, it is very positive to examine your future partner, support the right startups and bring in the right money. As YC Demo Day showed us, it is difficult to go slow when you can go fast. If money is swinging in front of you, how do you say no?
I don’t have a solution for the disconnect and, in the end, the change comes down to the ethics of individual investors and founders. But at the very least, this week of extremes gives a start to the craze for startups now.
In the remainder of this newsletter, we will focus on a five-month unicorn and Plaid’s harmony at the expense of Discord. As always, you can find me on Twitter @nmasc_.
Image credits: Getty Images
‘From launch to unicorn in 5 months’
Pacaso, a startup that wants to make it easier for people to buy a second home, reached a $ 1 billion valuation in just five months. The startup essentially wants to reinvent timeshares, with the goal of “bringing together a small group of co-owners to buy a part of a single family home” with access throughout the year, Mary Ann Azevedo reports.
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Here’s what you should know: Proptech’s unicorns are here to stay. My colleague Eric Eldon wrote about real estate trends, from co-living to a suburban lifestyle boom.
Colored bar and light trails composed on the glued boards. These are big data images in Cyber City. Image credits: Hiroshi Watanabe / Getty Images
Exits and lack of it in Plaid
Even an old business giant wants to remind you that the community is important. Microsoft is trying to obtain Discord, in negotiations that value the latter at $ 10 billion. The startup was last valued at $ 7 billion.
Here’s what you should know: the price of the deal seems a little cheap, argues the stock trio. When you consider the fact that Plaid could be valued at almost double or triple what would be sold to Visa, you need to ask whether Discord has an antitrust discount limiting its price.
Image credits: Discord
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Throughout the week
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