We investigate an unexplored role of venture capital (VC) investors on innovation; the potential value-add of due-diligence for companies involved in failed VC fundraising campaigns— i.e., startups that do not receive investment from the VC doing due-diligence. By VC due-diligence we mean the multi-stage process through which VCs scrutinize businesses for potential investment. Our novel data comprises nearly 2,000 startups applying for funding to a UK VC seed fund (Fund). For identification, we exploit the Fund’s process of screening applicants for due-diligence, which features pre-determined selection rules based on the scores of quasi-randomly allocated reviewers with different scoring generosities. We show that assignment to due-diligence leads to substantial increases in venture growth within two years of application, even for companies involved in failed fundraising campaigns. VC due-diligence comprises “type improvement” and “type discovery” mechanisms; tentative evidence suggest that type improvement (including coaching, learning-by-doing, and network support) may be primary. This new evidence implies that VCs’ role in innovation affects many more companies (approximately 30+ out of every 100 applicants) than existing research has fully recognized, as it goes beyond their value-added effects on the portfolio companies in which they invest (less than 1 out of 100 applicants). Therefore, frictions in the process through which startups seek and obtain VC funding can have profound implications for ecosystem-wide innovation and growth.