Creative due diligence: VCs go on social distance walks with founders

Steve Jobs was known for taking meetings while walking, even with people he was meeting for the first time.

In the era of social distancing measures amid the covid-19 pandemic, some early-stage VCs are adopting this practice for getting to know start-ups founders.

Some VCs are now going on social distancing walks with founders or meeting in the park and having a conversation six feet apart from each other, said Michael Kim, founder of Cendana Capital, a seed-focused fund of funds.

While there is some value in seeing founders in real life rather than on a screen via Zoom, Kim said that the virtual approach is not as effective as normal social interaction.

“You want to see how founders and their companies operate. You want to see their team together,” said Kim, whose San Francisco fund of funds manages $1.1 billion in assets.

Since face-to-face interactions are an important part of the investment decision process, most VCs are reluctant to fund somebody they have not met in person.

“Our managers have been making investments, but most of those processes started before shelter-in-place,” Kim said.

“New deals are down to a trickle,” he said.

While Cendana’s partners – including Forerunner Ventures, Lerer Hippeau, Uncork Capital and Mucker Capital – are seeing opportunities, performing due diligence on companies under lockdown measures is a big challenge, Kim said.

GPs are looking for creative ways to get comfortable with writing a check to founders they have not spent a great deal of time with.

“Maybe somebody in the VC syndicate has met the founder in the past. We are also trying to do more extensive reference checks,” Kim said.

While meeting six feet apart is one of the due diligence tools available to venture capitalists, Kim thinks it may be hard to pick up social cues from that distance.

Even if these interactions don’t lead to a deal, the walks could spark interesting ideas.