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Cities Uber/Lyft

Amid Funding Frenzy, Startups Dodge Diligence

Bob Kocher, a physician and partner at Venrock Capital who focuses on healthcare IT, knew something didn’t feel quite right about the pitch.

The startup touted its vast relationship with healthcare giant Kaiser Permanente, claiming it would eventually gain access to thousands of users and millions of dollars in revenue. But when Dr. Kocher did some digging afterward, it turned out the company had signed up only one insignificant player in the group, not the whole network, Dr. Kocher said.

Dr. Kocher declined to mention the name of the company, but he estimates that around a third of the presentations he sees include a “complete mistruth.”

It’s just one example of how verifying the truth about the most basic business details of startups is becoming harder for venture capitalists. The flow of cash into young firms has given sought-after companies like Uber more leverage during the investment process. And venture capitalists say some startups are using that leverage to withhold financial data, delay handing over documents and push the boundaries of slide deck puffery.

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