All Access

Fintech Deals

Standard

Fintech Deals Alerts

Alert

Fintech Deals Thought Bubble

Thought Bubble

mustard

BFD Expert Voices - Private Credit

BFD Expert Voices

After two frothy years of venture capital dealmaking, Fin Capital managing partner Logan Allin is predicting a reckoning of due diligence sins.

Why it matters: Fin Capital emerged as the most active investor in the fintech space in the first half of this year, per data from FT Partners.

What he's saying: "My view is that there's gonna be a lot of lawsuits coming out of [deals completed between] 2019 through 2021," he says.

Context: Stories of companies receiving term sheets in days rather than weeks or months became commonplace during the pandemic as investors rushed into tech-based businesses.

However, due diligence has come back into focus as LPs tighten their purse strings and cautionary tales (*cough* FTX *cough*) emerge.

This conversation has been edited for clarity.

Can you tell me how due diligence has changed between the pandemic era and now?

A lot of valuation work was being done off forward revenue. That was a very common trend from SPACs and the public markets where crossover investors were giving companies credit for 2024 to 2025 top-line revenue, not even earnings. Those numbers turned out to be a house of cards.

The pace has dramatically slowed. Now investors are no longer providing any credit for forward revenue on valuation; it's all based on trailing revenue or very near term. We're, for example, pricing companies on 2023 year-end revenue.

What kind of due diligence in particular were you seeing fall by the wayside?

We require audits or third-party forensic accounting as a part of our investment process, particularly for Series A onward. That lack of financial validation was a huge problem.

No. 2 was pipeline validation. Investors were taking at face value if a company said they were going to do $400 million in revenue next year rather than calling prospective customers.

Third was background checks and regulatory checks.

My view is that there's gonna be a lot of lawsuits coming out of [deals completed from] 2019 through 2021. If you were making misrepresentations and selling securities off falsified financials or producing forecasts that had no place in reality, you're in trouble. It's akin to celebrities saying NFTs were amazing and super-valuable. It's also becoming very clear that the SEC is regulating through enforcement.

There could also potentially be recourse in cases where the founder sold shares. If they didn't take any secondary and they lost out with the investors, obviously, there's not going to be much recourse there.

Tell me more about the background checks.

There was a deal that was done in 2021, where a VC called me and said, "Hey, I heard you passed on this deal. Why?" It was because the guy was getting sued for embezzlement. The VC just blew up on the phone, asking, "How did my legal team not catch this?"

I'm shocked how few people actually do background checks. With another check, we saw that a founder was just suing what seemed like all of his neighbors for how high their hedges were. Making a deal is like a marriage — and this was going to be a weird relationship. So we passed, and we told him why. He said, "That's absurd." We wished him well.

In a previous conversation, it also sounds like you see due diligence as a kind of investment opportunity.

Yeah, we call it GP/LP tech. We're actually putting the use of Standard Metrics (a Fin Capital investment for portfolio monitoring) into our side letters and our term sheets, which gives you more visibility into cash performance and the operating bank account.

This tech helps prevent stuff like Theranos. It's also one of my favorite litmus tests on the diligence side. If the CEO or co-founder reacts negatively to using Standard Metrics, we'll pass.

It sounds like you're anticipating lawsuits against founders and companies. Are you expecting any on the due diligence side from LPs against funds?

There already have been, with FTX and its investors like Sequoia. You're seeing it particularly against RIAs as it gives LPs more protection.

Logan Allin: Here comes the due diligence reckoning

Fin Capital sees a reckoning coming for lax due diligence.

Photo Illustration of Logan Allin, Managing Partner at Fin Capital with a pattern of gavels

Photo Illustration: Natalie Peeples/Axios. Photo courtesy of Fin Capital

Fintech

After two frothy years of venture capital dealmaking, Fin Capital managing partner Logan Allin is predicting a reckoning of due diligence sins.Why it matters: Fin Capital emerged as the most active investor in the fintech space in the first half of this year, per data from <a class="gtmContentClick" data-vars-link-text="FT Partners" data-vars-click-url="https://ftpartners.docsend.com/view/i6z46n247zjpd3gp" data-vars-content-id="20606c36-f3ab-4758-9c7a-132026e35ad8" data-vars-headline="Logan Allin: Here comes the due diligence reckoning" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://ftpartners.docsend.com/view/i6z46n247zjpd3gp" target="_blank">FT Partners</a>.

topics

politics-policy

epstein-files

donald-trump

2026-midterm-elections

immigration

behind-the-curtain

race-and-equity

technology

privacy-tech-regulation

automation-and-ai

tiktok-news

big-tech

social-media

cybersecurity

economy

social-security

inflation

tariffs

federal-reserve

jobs

transportation

business

stock-market-news

retail-news

crypto

Logan Allin: Here comes the due diligence reckoning

What to read next