The broader role of venture capital due diligence

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.