I recently read through Albert Wenger's Uncertainty Wednesday series, where he discusses uncertainty and how to deal with it mathematically. In the first posts he introduces a few key notions, one of which is Observations. Observations are important to understand because they have numerous limitations:
- measurement error,
Despite these limitations, we must base our understanding of the world on observations, since no one can grasp the entire reality of the whole universe.
Due diligence is an active observation of reality (where the reality is a startup with its microcosm of employees, technology, products, customers etc.). And like all observations, due diligence is constrained by various limitations, including where we decide to focus our attention, how much knowledge we have about the relevant concepts, time and monetary cost.
To draw a reasonably accurate representation of reality, our observations need to be fairly detailed and they should cover all aspects of a startup. Not only does this mean attention to all the details of a business, but also a coherent picture of how these interact, generate synergies or even create problems for each other. Focusing just on the team, while important, is insufficient. Validating a market opportunity and witnessing an exciting technology doesn't mean there is product-market fit. Having a team research a company in-depth doesn't guarantee effective cross-communication of each one's findings and their integration into a single view.
A big problem is when lack of expertise in a particular area leads to investors either not researching that area, focusing on the wrong things or being manipulated by company management, which are manifestations of the limitations of observations mentioned above. Neither is desirable. Our goal is to improve the accuracy of observations, generating more information than investors would be otherwise able to get given their constraints. We will help investors to avoid such blind spots and to generate a more complete representation of reality. Sign up here to make sure your observations describe the reality accurately.