[zpeti]

When I sold my smallish venture a year back I got around 400 due diligence questions. I answered them, put the material together.

From questions later on it became pretty obvious not one person, not the legal or operations team of the acquirer had look at anything I'd handed over.

I think this is a mixture of laziness and also that these due diligences are done for legal liability reasons, i.e. you can look at the materials if there ever is a lawsuit, not before.

But this is just an anecdote, this obviously depends on the acquirer, I'm sure plenty of companies do it properly.

[rexreed]

Acquisition due diligence is not the same as funding due diligence. There are definitely differences in the two and different reasons for doing it. For acquisition, due diligence is part of the legal and compliance requirements. For VC, due diligence is supposed to be part of the deal vetting process, but it's usually a headache for everyone, and goes out the window when they want to move fast.

[JackFr]

Bacon & eggs. The chicken is involved but the pig is committed.

https://en.wikipedia.org/wiki/The_Chicken_and_the_Pig

[conradev]

Yeah, in the case of an acquisition, the acquirer can acquire all sorts of unsavory things – liability, debt, contractual obligations, lawsuits, etc that could potentially harm the acquirer.

In the case of funding, the worst possible outcome is that they write off the investment, like in the case of Sequoia and FTX.

[peteradio]

There is enough due diligence to cover ass. I think what surprises people is that peoples asses were actually covered. What exactly did e.g. Sequoia see to give them confidence that there would not be significant cost if things went sideways? I guess you can always say its not illegal to invest poorly. But is it illegal to fund a house of cards where your position is to get a good deal on the inside of a potentially lucrative ponzi scheme? I think the whole thing is a good lesson for common (especially young) investors... care about and think in the longterm ... what is your nest-egg invested in? If things go sideways there's not great guarantees of which groups receive a prop-up and which are allowed to fall.

[Msw242]

How many of these VCs used their reputations to pump shit coins (which they got along with equity when they invested in these Ponzis) then sold the shit coins to retail investors?

Seems like they sold unregulated securities

[bmitc]

Doesn’t collecting the material but not looking at it actually create risk and liability rather than reducing? For example, take the extreme that you answered one of the questions with admitting to selling to a sanctioned country. Well, they knew about it and have record of knowing about it but acquired anyway because they never looked at the materials.

[rzwitserloot]

Yes. If you get sued as a company for e.g. negligence, and it's pretty clear you're not going to win by attacking the point directly, the two go-to arguments are:

1. I did not know, and whilst I have a duty to know, in this case I was intentionally misled by others and couldn't have possibly known: I _did_ do my DD on asking for this information, however, I was lied to.

2. Okay, you got me, you win your case. Now I go sue the seller for having failed to disclose and making them pay me the same amount as I have to pay you.

Both of which are severely hampered by not reading the DD. At best you could say that by not doing the DD at all, you insta-lose on the first point (you have a duty to ask, if you can't show that you asked, you lose immediately). However, given that you now received it, it seems like a significant misunderstanding of the situation if you then don't get some intern to read it and highlight dubious lines and cross check a few things.

It's possible this is just the same shit moneyball is about: Lawyers putting a lot of stock in looking around and seeing what the rest of the lawyer clan does, and not using the brain whatsoever, trusting _entirely_ on the gut instinct of 'yes, this feels familiar and it is what we all always do, therefore, surely it must be fine'.

Case in point: Email footers claiming 'if you aren't the intended recipient, you must delete it; all this stuff is confidential' are fucking retarded. Obviously it's not legally binding (if it was, I can wrap a note 'you indemnify me by receiving this object' around a brick and throw it through your window!), it looks stupid if it's at the bottom of e.g. a press release you mailed to a newspaper, 'not the intended recipient' is not something you could possibly prove (hey, you mailed it to me, therefore I am the intended recipient), and by not suing those in evident breach of your clause, you establish that you don't enforce it. If you then attempt to sue somebody for disclosing actually private information that was clearly under NDA or whatnot, they can make a plausible defense in court that you never sue anybody for it and that therefore this is just picking and choosing, which has some legal legs.

And yet _every lawyer office and almost all businesses with a legal team_ does this, as do many companies with nothing like it (presumably, those'd be cargo culting, the legal companies / companies with legal teams are actively lemmings jumping off the cliff to follow their pals).

Possibly they do it because they know others expect them to, but I find it dubious that it's a good idea to actively do stupid shit just because people _think_ it's smart. It's not like having a footer makes you stand out these days. On the contrary.

) Yes, disney movie, lemmings don't actually do that. Which makes these companies even dumber, no?

[singleshot_]

> Obviously it’s not legally binding

Obvious to you, but not quite factually correct. This is, of course, not an attempt to form a contract or NDA (which would be ridiculous) but instead, an attempt to put a certain kind of recipient in notice.

Lawyers operate under ethical rules which differ slightly state-to-state but are largely based on the ABA model rules of professional conduct. Check out Rule 4.4:

“A lawyer who receives a document… and knows or reasonably should know that the document… was inadvertently sent shall promptly notify the sender.”

The standard footer is part of making sure the recipient “reasonably should know” that a document not intended for him is not intended for him.

Now, obviously, this warning is not binding on you in any significant way, but it likely has some effect on your lawyer, assuming he is licensed in a state that puts such a responsibility on him.

Your conclusion about the legal effect of the brick thrown through a window is probably correct, however.

[bartread]

As you suggest, I'm not sure how typical that is, and it would very much depend on the acquirer. We've made quite a few acquisitions over the years, and there have been other potential acquisitions where we've chosen not to proceed due to something that's come out during DD. That's not to say we've never had any mess to clean up post-acqusition, but it's always been mess that we were aware of either through early conversations or through the DD process.