The broader role of venture capital due diligence

Gonzalez-Uribe, Juanita ORCID: 0000-0002-1945-7372, Klingler-Vidra, Robyn, Wang, Su and Yin, Xiang (2025) The broader role of venture capital due diligence. Review of Financial Studies. ISSN 0893-9454 (In Press)

Text (Due diligence final version (002)) - Accepted Version Pending embargo until 1 January 2100. Available under License Creative Commons Attribution. Download (4MB)

Abstract

Analyzing approximately 2,000 applicants to a UK seed fund, this study examines how venture capital (VC) due diligence affects startup outcomes independent of funding decisions. Leveraging random reviewer assignment, we find that due diligence increases two-year growth but lowers continuation rates among non-funded applicants, reflecting a dynamic of accelerated scaling or exit. Evidence points to a learning mechanism: due diligence exposes founders to advanced website technologies, prompting capability-building in digital skills. Firms selected for due diligence adopt these technologies, even before raising external capital. The findings highlight VC due diligence as a formative process influencing startups beyond the funded few.

Item Type:	Article
Additional Information:	© 2025 The Author(s)
Divisions:	Finance
Subjects:	H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HG Finance H Social Sciences > HB Economic Theory
JEL classification:	J - Labor and Demographic Economics > J2 - Time Allocation, Work Behavior, and Employment Determination and Creation; Human Capital; Retirement > J24 - Human Capital; Skills; Occupational Choice; Labor Productivity M - Business Administration and Business Economics; Marketing; Accounting > M1 - Business Administration > M13 - Entrepreneurship
Date Deposited:	01 Sep 2025 10:33
Last Modified:	11 Sep 2025 12:31
URI:	http://eprints.lse.ac.uk/id/eprint/129338

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