Read any article on startup due diligence and chances are, you'll see a list of questions to ask. I've seen lists both with just a handful questions and with well over a hundred. This is understandable - questions are the main way for human beings to extract information from each other.
But it's a very inefficient approach! First of all, every company is unique, thus:
- Not all standard questions will be relevant to every single company.
- Conversely, a standard set may not include questions that may be important to some companies.
Therefore a 'one size fits all' approach doesn't work well here.
- Another problem is that asking questions is not always the best way to extract information:
- The question itself can serve as a signal, which can be used to 'game the system' by the respondent.
- The phrasing of questions can introduce bias in the answers.
- Important information that is not explicitly covered by a question may be left out by the respondent (since you didn't ask for it, why should the respondent provide it?).
- Specific questions limit the amount of information in the answer.
- General questions provide too much room for interpretation. Sending refined versions of questions may look like an interrogation or lack of preparation, either way you're losing time and goodwill.
- Conflict of interest is an ever-present problem: founders need your money and are in love with their companies, so their answers will be biased, either consciously or unconsciously.
- And of course,
Information asymmetry and conflict of interest are probably the biggest problems in investing and the best way to eliminate them is to take the humans out of the equation where possible. Technology allows us to gather facts, analyze sentiment, find hidden links and do many other things with data more efficiently than humans can, freeing up our time for personal interactions, idea generation and other 'human' things. We at Avogadro One will help you with this.
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