Some founders have started to charge "due diligence compensation for lost working time".

Not long ago, an investor friend shared an interesting story with me: The founder of a popular startup in a hot sector, overwhelmed by frequent visits from VC firms for due diligence, proposed a requirement that "those coming for due diligence must first pay compensation for lost working time." The founder also gave this decision a name, calling it the "reverse investment model."

This immediately reminded me of Lingcun Technology, which previously gained popularity for its requirement of a "10 million yuan deposit for due diligence." However, compared with Lingcun's "sky - high" threshold at that time, the pricing of the above - mentioned startup is quite "affordable" - only a few thousand yuan. In the founder's view, this fee is not a high threshold for investors, but it can effectively filter out those who "have no real strength and are just joining in the fun."

Interestingly, two institutions have already paid the fee and officially entered the due - diligence process.

For a long time, due diligence has almost been a "privilege" unilaterally exercised by investment institutions, and startups can only passively cooperate. The current role reversal also reflects the deep - seated contradictions in the primary market: When the competition in hot sectors reaches a white - hot stage and high - quality projects are scarce, investment institutions face increasing pressure to control risks with the principle of "it's better not to invest than to invest wrongly," but they still need to conduct continuous due diligence to maintain market sensitivity. On the other hand, the excessive "sightseeing - style due diligence" has made founders gradually realize that their time, energy, and focus are more scarce strategic resources than capital.

This change in value perception has given rise to new behavioral patterns. Li Chao, a hard - tech entrepreneur, frankly said that when his company reaches a certain stage, he will seriously consider adopting this "reverse investment model." In his view, this is not only an efficient screening mechanism, but also a crucial step for entrepreneurs to gain bargaining power and strive for equal dialogue rights at a deeper level.

A Backlash of Emotions

For many founders, meeting with investors has become an unbearable burden in their lives.

Recently, influenced by factors such as favorable policies, market expansion, and soaring stock prices in the secondary market, the long - dormant innovative drug sector has once again attracted the attention of the primary market. As the CEO of an innovative pharmaceutical company, Frank is happy but also a bit helpless.

He showed me his due - diligence calendar: He needs to cooperate with three institutions for due diligence in a week, providing materials including but not limited to R & D data from the past few years, core patent layouts, supply - chain contracts, etc. "It's like giving away all the business secrets in one go, but you can't be sure whether the other party is sincerely interested in investing or just collecting intelligence."

Of course, what is more serious than the concern about the leakage of business secrets is that continuous investor meetings and data preparation have seriously weakened the focus on the business itself.

In the current financing environment, unless it is a very top - tier project, it is difficult for a startup to support its technological development cycle with a single investment. Therefore, most startups have started to adopt the "small steps, fast runs" approach, that is, to maintain cash flow through multiple rounds of small - scale financing. The common "Angel ++", "A+++++" and other financing rounds in the market are manifestations of this approach.

However, it cannot be ignored that this financing form is very energy - consuming for entrepreneurs. Li Chao calculated an account for me: "Currently, the average financing cycle for startups is about four months. This means that if a founder wants to maintain a financing rhythm of 1 - 2 rounds a year, most of their time will inevitably be spent on meeting investors and conducting financing, which reduces the investment in the business itself."

The founder of another core material supplier in the new energy field also complained that due to the surge in market demand, he had received dozens of batches of investor visits in just a few months. Moreover, since the industry is a niche and segmented field, he has to spend a lot of time educating layman investors about the industry. He said that frequent absences from the production line to handle these matters have affected the normal production scheduling of the company.

In reality, the time and energy occupied by entrepreneurs often do not yield satisfactory results - most investors disappear without a trace after the due - diligence is completed.

Facing the due - diligence dilemma, entrepreneurs are shifting from passive acceptance to active problem - solving. Charging "due - diligence compensation for lost working time" is just one way to reconstruct the rules. For example, I heard that some high - quality projects require institutions to show proof of funds before arranging due - diligence meetings, or to sign a Term Sheet (TS) before due diligence.

"Actually, everyone knows that an unfulfilled TS is just a meaningless piece of paper. Startups do this just to discourage some small institutions without sincerity and junior investors who can't make decisions, improve screening efficiency, and reduce transaction costs," Li Chao said.

"It's Better Not to Invest Than to Invest Wrongly"

To some extent, the root cause of the current "excessive due diligence" lies in the scarcity of high - quality projects.

In my article "VCs Fall in Love with 'Growing Fruits'", I mentioned that a prominent phenomenon in the primary market today is that since 2025, investment institutions seem to be more active, but hot money is highly concentrated in a few hot sectors, and the polarization of projects is becoming more and more serious.

When large amounts of capital flow towards leading companies, it directly raises the entry threshold for VCs. Take the embodied intelligence sector as an example. Currently, the valuations of leading companies such as Unitree and Zhipu have exceeded 10 billion yuan, and the valuations of companies like Galaxy Universal and Fourier are also above 7 billion yuan.

Zhao Yichong, an investor from a mid - tier institution, revealed to me that his institution once had the idea of competing for a star project in the robotics sector. "But as soon as the boss heard the price, he immediately gave up."

Meanwhile, the changing capital structure in the primary market in the past has made LPs' demand for investment success rates more prominent. However, many hot sectors are still in the early stages, and their commercialization prospects need further verification. "Especially in the AI sector, many projects have real problems such as small market scale, unviable business models, and poor product experience. Even for some star projects, see how many will still be around after five years," Zhao Yichong said.

This concern is not unfounded. Take Wolfspeed, the leading silicon carbide company that recently applied for bankruptcy, as an example. At its peak, it occupied 62% of the global market share. An investor in the new energy field publicly recalled on a social platform that when looking at the silicon carbide sector, almost all project business plans (BPs) would mention Wolfspeed.

The investor believes that Wolfspeed's bankruptcy was largely due to its misjudgment of the market and competition, which is also a common problem for most "bubble projects." Having witnessed Wolfspeed's decline from the top of the industry to bankruptcy and reorganization, he couldn't help but sigh: "The value of the saying 'it's better not to invest than to invest wrongly' is constantly increasing."

Under the combined influence of multiple factors, "looking but not investing" has become the basic strategy for most institutions to avoid risks.

However, even so, investors still need to continuously review projects because only through high - frequency contact with the front - line can they obtain the latest information and resources and maintain market sensitivity. Many investors have expressed similar views to me: "Sometimes, even though we know that the project quality is average, we are afraid of missing the trend, so we can only conduct more due diligence to relieve our anxiety."

As a peer, angel investor Shen Yang fully understands the learning and communication mindset of investors. But as a shareholder behind several startups, he can also empathize with the backlash of emotions from founders.

He shared a personal experience with me. Not long ago, he was invited by a peer to an online project roadshow. When he logged in, he found that there were more than thirty investors in the meeting room. After the founder finished presenting the PPT and asked if there were any questions, more than thirty people only casually asked three or five questions and then ended the meeting hastily.

"This 'crowded' online roadshow gave the founder a terrible experience. After speaking for a long time with great effort, almost no one asked serious questions, and it just felt like a waste of time," Shen Yang said. After that, he advised the startups he invested in to avoid similar online roadshows unless they were from truly important institutions with real intentions to proceed.

"In the End, It's All About Strength"

Whether it's charging "due - diligence compensation for lost working time" or requiring the signing of a TS in advance, in essence, it shows founders' dissatisfaction with the current due - diligence ecosystem and their attempt to gain the right to speak by reshaping the rules. However, in the view of most entrepreneurs and investors, this "reverse investment" model is not suitable for everyone. The key lies in whether the startup has enough bargaining power to change the rules of the game.

Take Rewind, a Silicon Valley AI startup, as an example. During its financing in the first half of 2023, the company staged a classic "reverse due - diligence" scenario. To avoid spending too much time and energy on financing, the founder of Rewind directly publicly broadcast the financing PPT on Twitter in a video, asking truly interested investors to fill out a form and submit their offers. After the video was released, the company received preliminary offers from more than 1000 VCs and 170 TSs, with the highest valuation offer exceeding 1 billion US dollars.

When analyzing Rewind's "feat," the outside world usually attributes its success to two key factors:

First, the AI large - model sector where Rewind is located was at the peak of the trend in 2023. As a star project at that time, Rewind received a 10 - million - dollar investment from well - known institutions such as a16z and First Round Capital in the seed round, with a valuation reaching 75 million US dollars, which had strong market appeal.

Second, Rewind's own performance was also very impressive. In the months before the financing, the company's annual recurring revenue (ARR) showed a linear increase, reaching 707,000 US dollars.

Market popularity, solid performance, and even the endorsement of well - known shareholders are the prerequisites for investors to accept Rewind's "reverse due - diligence." For most startups in less - popular sectors with average quality, they still cannot escape the fate of being "screened."

In fact, there is no right or wrong in either the investors' "looking but not investing" or the founders' "reverse due - diligence." In the current special market environment, due to their different positions, both sides have chosen different coping strategies.

From the investors' perspective, under the dual pressure of fundraising and investment, "sightseeing - style due diligence" and "looking but not investing" can, to a certain extent, help them avoid investment risks. From the founders' perspective, in the highly competitive innovative sectors, time is the lifeline for the transformation of scientific research results and product implementation. For them, proposing "reverse due - diligence" is a way to improve screening efficiency and reduce transaction costs.

However, capital and entrepreneurship are ultimately a two - way process. Only when investors and entrepreneurs break out of the "opposition" trap can they truly build a healthier and more sustainable investment and financing ecosystem. Of course, all this is based on the premise that both sides can find their own ecological niches and development directions.

(Frank, Zhao Yichong, and Li Chao in this article are all aliases.)

This article is from the WeChat official account "China Venture Capital News", author: Wang Manhua, published by 36Kr with authorization.