Bankers And VCs Now Ask Questions!

from the well,-gosh,-it's-about-time dept

Stop the presses! VCs and bankers have finally learned what “due diligence” really means. It seems that these folks are actually (get this) asking questions before they throw money at a startup. It’s about time, isn’t it? Though, there are some weird examples in the article, such as the firm that decided not to invest in a startup because they felt the furniture in their office was too expensive. Of course, perhaps this was a smart startup that bought the furniture for pennies on the dollar from a local bankrupt dot com. I also think that this article is a bit misleading. VCs asked questions before, it’s just the nature of the questions have changed. It used to be that the questions were about the benefits. How big can this market get? How much money can we make? Now, they’re all about the cost side of the equation. How much will this cost to build? How much do your employees cost? A smart business person realizes that there’s a balance that’s needed. You need to look at both sides of the cost/benefit equation. What if (yes, it’s a stretch, but I’m trying to make a point) the expensive furniture in the example above made it possible to hire star programmers who required comfy chairs, and who made the product much more valuable, offsetting the cost of the chairs? A cost is reasonable if the benefits outweight the costs. Too often these days people are looking to cut costs without looking at the corresponding benefits.

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