You're navigating due diligence with conflicting data sources. How do you make the right call?
In venture capital, making sense of conflicting data sources is crucial for sound investment decisions. Here’s how to navigate this complex task:
How do you handle conflicting data in your due diligence process? Share your insights.
You're navigating due diligence with conflicting data sources. How do you make the right call?
In venture capital, making sense of conflicting data sources is crucial for sound investment decisions. Here’s how to navigate this complex task:
How do you handle conflicting data in your due diligence process? Share your insights.
-
Due diligence is a non negotiable in deal making hence it’s important to have founders be aligned with your expectations of transparency and accuracy. In case the sources are conflicting, you should not shy away from asking tough questions and validating through multiple sources. It’s good to have experts by your side who bring years of experience in doing DD. They often have a checklist of questions and processes they follow. Transparency has to be reflected on both the sides- founders as well as investors. Make sure you clearly specify the objectives of data collection and do not overwhelm the founders as they have a lot on their plate.
-
Challenge the data sources. 1. Who provided the data sources? Be aware of potential biases or motivations behind each data source. For instance, data from a company’s internal report might be overly optimistic, whereas third-party audits might provide a more balanced view. 2. Use a triangulation approach by gathering data from various perspectives (e.g., industry reports, expert interviews, customer feedback) and create different scenarios based on the conflicting data. 3. Clearly communicate your findings, the rationale behind your decisions, and any uncertainties to stakeholders. Ensure they are aware of the potential risks. 4. If data ranges are too big or data just doesn't match, don't be afraid to take a step back.
-
When faced with conflicting data during due diligence, I embrace creative problem-solving. Try looking beyond traditional sources by exploring alternative data sets such as market sentiment analysis or competitor behaviours. Use advanced analytical tools like AI and data discovery tools like Dtechtive to uncover hidden patterns or correlations that clarify inconsistencies. Consider scenario modelling to test outcomes under varying assumption and provide a broader context for decision-making. Engage stakeholders in brainstorming sessions to challenge assumptions and identify/challenge overlooked factors. Ultimately, blend innovative approaches with rigorous analysis to make informed, confident decisions in the face of uncertainty.
-
When different sources of data don’t align typically helps to have a bottom up approach, sample test or ground level research to provide signals on which sources might be worth further digging into. Helps to look at assumptions made and sources of data, to look for longer term data sources for reliable trends and to make efforts to avoid any conscious or unconscious biases such as confirmation bias when trusting one data source over another.
-
Conflicting data in due diligence? Welcome to the VC jungle. Here's how to machete your way through: First, prioritize primary sources. Direct customer interviews and raw financial data trump second-hand reports. Next, triangulate. Cross-reference multiple sources to spot patterns and outliers. Don't shy away from tough questions. Push founders on discrepancies – their responses can be telling. Consider the context. Market shifts or pending deals might explain some inconsistencies. If something feels off, dig deeper. Perfect data doesn't exist. Focus on what matters most for your investment thesis. Ultimately, make a judgment call. That's why they pay you the big bucks. In VC, the right decision often lies between the data points.
Rate this article
More relevant reading
-
Venture CapitalInvestors are pushing for instant updates in a volatile market. How can you meet their demands effectively?
-
Private EquityYou're a Private Equity professional. How can you use data to solve problems?
-
Private EquityWhat are the most effective ways to communicate industry trends and analysis in a private equity deal?
-
Venture CapitalYou're navigating market volatility as an investor. How can you leverage data analytics for insights?