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Welcome to hot due diligence summer 

Wow, that headline worked?
A recent board fight at a digital health unicorn is a reminder to entrepreneurs that it’s important to set boundaries, even amid the dizzying volume and velocity of this summer’s deal frenzy.
This week I published a scoop about how Bessemer Venture Partners replaced a board member at Hinge Health, after that board member invested in a competing startup. Hinge Health co-founder Daniel Perez alleges that the board member did not notify him before they led a round in an early-stage startup in the same sector.
The situation gives a rare and nuanced peek into the world of competitive tension between startups. While founders expect certain standards of conduct from investors, including that they notify them of investments in directly competitive startups, investors may be feeling more pressure to make faster decisions that clash with the founders they’ve already backed, while having different definitions of competition from their portfolios. In a post-NDA world, the rules need to be rewritten around how to have these conversations.
I’m not quite sure if more due diligence is the solution to everyone’s woes — but I do think transparency and explicitness between founders and investors can’t hurt. It’s not just for founders. Investors, who owe returns to their LPs, don’t want to be in situations where they can’t invest in a booming sector because they have one other investment in the sector.
The situations are endless:



What happens when a startup pivots into a different market than the one that it sold its investors on and is suddenly competitive with a portfolio company?




What if a portfolio company’s future roadmap includes a go-to-market strategy that clashes with a potential investment?




Can a Sequoia India partner back a company that is directly competing with a Sequoia India company?




Is it okay for there to be competing investments within the same firm as long as different partners are sitting on the board?



Based on my DMs, Hinge Health isn’t alone in dealing with current investors backing competitors. It adds an asterisk to the barrage of funding rounds. Welcome to hot due diligence summer, I guess?
In the rest of this newsletter, we’ll get into the Duolingo S-1, a creator economy rebrand and an exclusive interview with top startup marketers. As always, you can find me on Twitter @nmasc_ — send me tips or notes on any competitive tensions you’ve dealt with.

Wall Street, it’s time for your language lesson


Welcome to hot due diligence summer 
Image Credits: Duolingo
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