With fundraising rounds closing in weeks instead of months, investors can no longer conduct exhaustive diligence on every detail. The process has become more efficient by treating the current business model as table stakes and focusing limited time on underwriting the core thesis for future, non-obvious growth.
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The current fundraising environment is the most binary in recent memory. Startups with the "right" narrative—AI-native, elite incubator pedigree, explosive growth—get funded easily. Companies with solid but non-hype metrics, like classic SaaS growers, are finding it nearly impossible to raise capital. The middle market has vanished.
Top growth investors deliberately allocate more of their diligence effort to understanding and underwriting massive upside scenarios (10x+ returns) rather than concentrating on mitigating potential downside. The power-law nature of venture returns makes this a rational focus for generating exceptional performance.
An expert reveals two shocking statistics: 80% of new founders fail their first diligence attempt, and 85% of early-stage investors don't perform confirmatory diligence. This highlights a massive, systemic weakness and inefficiency in the startup ecosystem, creating significant risk on both sides of the table.
An ex-SoftBank investor observes that founder financial models have become more like marketing assets to sell a narrative than realistic planning tools. This systemic issue forces VCs to apply automatic 50-75% "haircuts" to projections, eroding trust and making the fundraising process highly inefficient for both parties.