By Karan Bhatty, Founder, Millow
For much of the decade before 2022, venture capital in India operated on a simple logic: the cost of missing a winner was higher than the cost of funding a bad actor. Capital was abundant, rounds closed fast, and investors competed to be seen as founder-friendly. Thorough diligence was, in many cases, treated as a deal risk rather than a fiduciary necessity.
Then the correction arrived, and so did the consequences.
The governance failures that came into public view between 2022 and 2023 — at GoMechanic, BharatPe, Mojocare, Zilingo and others — shared a common thread. In each case, the issue was not that diligence was entirely absent. It was that diligence was too dependent on what the company chose to present. Investors verified incorporation documents, basic financials and cap table records. What they did not independently verify was whether the revenue was real, whether the customers were active, whether vendors existed, or whether related-party networks were operating behind the scenes.
Standard diligence checks whether documents exist. The harder question is whether the story those documents tell is independently true.
The 2022 correction was a watershed. Limited partners and development finance institutions, including IFC and SIDBI, began asking direct questions: how did fund managers sitting on boards miss these signals? The answer led to a structural shift. Pure financial due diligence was no longer considered sufficient. Integrity due diligence became the new requirement covering company and individual profiling, litigation mapping, field investigation, deep referencing, market intelligence and OSINT. For many venture capital firms, this category of work did not formally exist before 2022.
What has made this operationally viable at scale is the maturation of India’s digital public infrastructure. The ministry of corporate affairs and registrar of companies databases now allow rapid checks on directors, company status, filings and corporate associations. The Account Aggregator framework, launched in 2021, created a consent-based route for financial data sharing. GST and e-invoice infrastructure enables business registration and transaction-linked verification at volume. DigiLocker and API Setu have improved document authenticity checks. Court records, adverse media databases and sanctions lists have become more searchable. Together, these systems have changed what is possible at the diligence stage without proportionally increasing time or cost.
Automated due diligence platforms use these sources to map entity relationships, flag litigation, cross-check director histories, screen for adverse media, validate financial claims against independent signals and surface discrepancies between pitch materials and operating reality. A Level 1 investigation covering company profiling, litigation checks, financial due diligence and integrity profiling can now be completed in three days. Previously, the same work took significantly longer and was priced in a way that made it inaccessible to early-stage investors.
This matters because the diligence gap has historically been most acute at the seed and pre-seed stage. Large funds could absorb the cost of comprehensive third-party checks. Angel syndicates, family offices and smaller funds often could not. Automation changes that calculus. It does not replace human judgment and it should not be expected to. It does not declare a founder trustworthy or otherwise. What it does is gather data faster, validate facts independently, identify mismatches and organise findings so investors can ask better questions with better information.
Market regulator SEBI’s October 2024 circular prescribing diligence requirements for AIF investors signals that regulatory expectations are moving in the same direction.
The era of relationship-led, founder-deferential diligence is not ending. But it is being supplemented by something more rigorous. For investors writing cheques into early-stage companies, the question is no longer whether to do diligence. It is whether the diligence being done is genuinely independent.