Silicon Valley's Due Diligence Gap

Shaan Puri and Sam Parr discuss how Silicon Valley's investment culture operates with minimal due diligence, particularly during bull markets, though they disagree on how common outright deception is in the ecosystem.

• Silicon Valley Investment Culture:

  • Very little due diligence at early stages
  • Even later stages often rely on momentum ("hot deals") rather than deep investigation
  • Operates on tight timelines with minimal data sharing
  • "You're either in or you're out" mentality

• Market Dynamics Impact:

  • Bull markets: Investors make quick decisions with minimal verification
  • Bear markets: Investors gain leverage to ask more questions and dig deeper

• Risk vs. Speed Trade-off:

  • System accepts some fraud as cost of doing business
  • Similar to credit card industry accepting 1% fraud rate
  • Speed and accessibility valued over perfect verification

• Founder Credibility:

  • Past issues (like fraud charges) aren't automatic deal-breakers
  • Must be evaluated case-by-case
  • Some VCs view investing in controversial founders as "contrarian" opportunity

• System Assessment:

  • Sam believes the system generally works despite occasional exaggerations
  • Distinguishes between:
    • Common "fake it till you make it" optimistic forecasting
    • Rare cases of outright misrepresentation
  • Accepts some bad outcomes as necessary trade-off for funding innovation quickly