Once a VC is excited about your company they will begin conducting due diligence. While the due diligence process varies by firm, it is an incredibly important part of the investment process for venture capitalists.

The phrase “you don’t know what you don’t know” is the underlying rationale for the due diligence process. VCs are conducting due diligence on your company because they think some key assumptions are likely to be true. For example, they may be assuming that your market is rapidly growing or that customer will want to use your service. However, those assumptions can be wrong and VCs don’t want to take that chance.

Nearly every company that a VC considers operates in a different niche market that has its own competitive dynamics and market trends. It is critical to have a thorough understanding of these dynamics and trends when evaluating a company. The evolution of the competitive dynamics and the market trends dictate the extent to which a company will be successful in the future.

Obtaining a deep understanding of a marketplace is not easy to do. While a substantial understanding of the marketplace can be obtained by reviewing market research, reading articles and evaluating the key competitors. However, in order to understand the nuances of a marketplace investors needs to speak with key market participants, such as customers, suppliers and when possible competitors.

It’s worth noting that the VC can discover “deal killer” findings at any point in the due diligence process. Its not uncommon for the process to be nearly complete when new information is obtained that makes an investment impractical.

It’s important that you understand how important the due diligence process is to a VC, so that you will both be patient with them and do your best to facilitate the process.