Like most people in the startup investing world, I want to believe. Virtually every startup has an exciting idea and (claims that it has) the technology to turn that idea into reality, whether it's doing multiple medical tests using just a single drop of blood, flying people to Mars, or simply helping people eat healthy food. Employees, investors and customers buy into the founders' vision, believing that they are contributing to a brighter future for humankind, and it makes everyone happy. At least for a while. The flip side, of course, is that what sounds too good to be true sometimes is.
In a post titled 55 things learned as a 19 year old VC, Tiffany Zhong from StartupGrind summarizes well the approach investors should take. I've excerpted a few nuggets that I want to touch on specifically:
3. The key to asking good questions is admitting what you don’t know, and being able to clearly articulate what you do understand.
4. Always ask why. Keep digging deeper until you can’t ask why anymore.
5. Be skeptical. Don’t believe everything you hear! I don’t want to be a cynic, but this rule applies to life too, unfortunately.
6. Have strong opinions, weakly held. Have thick skin and be fearless. Jump into Twitter conversations where you feel like you don’t belong, ask questions even if you think they’re stupid, generously give your ideas to others, share unique perspectives on topics, have conviction, and express your thoughts even if they may be wrong.
If I had to distill this advice into a single phrase, I'd go with another X-Files quote: "Trust No One." Due diligence is about understanding how and why a company will succeed (or fail). This means the investor has to get their hands dirty, digging into technical details that may be overwhelming. Combine that with a risk of embarrassing themselves by asking seemingly elementary questions, and you get a whole bunch of biases that prevent people from making informed decisions.
But how can anyone without a PhD understand all the intricacies behind a new invention, you might ask. Well, Avogadro One attempts to do just that - help investors figure out whether a technology is really unique, if it really does what it says, who else is working (or used to work) on something like that, and even get qualified opinions from people that actually do have PhDs. Lack of specialist knowledge should not be a reason to skip important due diligence steps or to avoid a whole sector altogether, leaving exceptional opportunities for others to exploit. We will help investors build expertise where they may lack it, and importantly - maintain it within the context of rapidly advancing scientific research and development of new technologies.
PS: Granted, not all startups are that 'romantic', working on smaller issues, like drawing blood samples from patients in their homes or automatically generating APIs, which are no less exciting for investors. One-size-fits-all isn't always a good approach, and our platform will accommodate other due diligence processes. But our initial focus is on helping investors do due diligence in science and technology field.