AI for Due Diligence: An Untapped Market

Transforming Investment Analysis with AI: A Business Idea for The Taking

I'm sharing an untapped business idea with you because I see its transformative potential. I’m sharing it because a) I don’t have the bandwidth to pursue the idea, and b) the idea is only 5% of the battle. The remainder is a lot of very careful and intelligent execution. As Steve Jobs said, there's a "tremendous amount of craftsmanship between a great idea and a great product."

Investment due diligence is a market yet to fully capitalize on AI's power. This process is traditionally labor-intensive and fraught with challenges, as demonstrated by examples like IRL and Baiju, mentioned in the latest All In Podcast Episode 135. IRL, with 95% fake users, and Baiju, now marked down by 75%, raised significant capital due to inadequacies in due diligence.

What should you expect and demand in a data room? What uncomfortable questions need to be asked and pressed on to get a clear picture of the business as it stands? What do the best investors in the world do that can be reproduced on your investments, especially if you are an Angel or smaller investment firm trying to allocate capital and don’t want to do it in the dark?

My experience as a member of Tiger 21 has exposed me to a myriad of investment opportunities. While some are more attractive than others, the daunting task remains: vetting the business, asking the right questions, and calculating the right metrics, tasks for which I don’t feel fully qualified.

The solution: AI for Due Diligence. The envisioned AI would automate the creation of a data room, analyze vast data about customers and financials, and provide objective evaluation, significantly improving due diligence efficiency and accuracy.

Key features would include data analytics to track user statistics, financials, and market projections, verification of startup claims using independent databases, and facilitation of off-script reference checks through AI-driven sentiment analysis, which David Sacks says is the most important aspect of Craft Ventures’s diligence beyond looking at the core metrics.

The hurdles to implementing this idea are substantial. Data privacy and security, unbiased analysis, including understanding the core metrics for business models (like SaaS) to calculate performance compared to other investment opportunities, comprehending the state of the market for valuations and multiples, and regulatory compliance pose significant challenges.

I'm passing this promising idea on to you. Aspiring lawyers, finance professionals, experienced M&A dealmakers, innovators, AI enthusiasts, and industry experts can take this concept and run with it and hopefully turn it into a game-changing product.