A lot has been written in the last week about the scandal at Canopy Financial, a venture-backed, high-flying start-up that attracted $75 million in capital at increasingly higher prices from top-tier firms, only to come crashing down in a dust of rubble and fraud. The VC community suffered a very similar scandal at Seattle-based Entellium last year, but few reporters seem to remember that one, perhaps because it wasn’t located in the heart of Silicon Valley as Canopy was.
Many of the VCs I’ve spoken to are frankly not surprised that these kinds of fraudulent schemes could have occurred. In truth, our industry is built on a trust model. We do our best to conduct due diligence on the team, market, strategy, technology, but at the end of the day many of these investment decisions get made in short periods of time (30-60 days) with incomplete information, particularly when a deal is competitive. Bandwidth-limited general partners and frenetic CEOs are under pressure to move fast and get things done, leading to rushed, sloppy work to secure the deals.
Note to Entrepreneurs and VCs: Trust, But Verify - BusinessWeek
