Studying roughly 2,000 applicants to a U.K. seed fund, the authors exploit random assignment of reviewers to isolate the effect of due diligence itself, separate from the funding decision that follows it. They find undergoing due diligence raises two year growth among rejected applicants, but also lowers their continuation rates, consistent with a pattern of accelerated scaling or earlier exit. The proposed mechanism is learning: due diligence exposes founders to more advanced website technologies used by successful ventures, and rejected applicants who went through it go on to adopt these technologies themselves, even before raising outside capital. The paper's central claim is that due diligence functions as a formative process shaping startups well beyond the small set that actually receives funding.

This paper challenges a common assumption in venture capital, that due diligence is purely a screening tool with no consequence for the many startups that get rejected along the way. For LPs and fund managers, it offers evidence that the diligence process itself can improve portfolio quality across an entire applicant pool, not only among companies that ultimately receive a check. For founders, it is a reminder that going through a rigorous review, even one that ends in rejection, can surface concrete capability gaps, such as outdated web technology, that are worth fixing regardless of the funding outcome. Researchers studying entrepreneurial finance get a clean identification strategy, using random reviewer assignment, for separating selection effects from treatment effects in VC processes.