due diligence

Lemon Theory of Due Dilligence

Last week, Bizologie presented at the SLA Texas Chapter meeting of information professionals in Dallas. It was a great program sponsored by Plunkett Research and IEEE. We had the privilege of hearing Dr. David Croson a professor of strategy, entrepreneurship, and business economics at SMU Cox School of Business. Croson is also an angel investor. His research and his presentation, Cashing In On Superior Research In The Startup Economy, both focus on the value of information in decision-making.


Because investors need to move money and make investments, time spent trying to pick only the best companies, or the “cherries” as Croson calls them, can be counter productive. Croson posits it is better to focus on filtering out the lemons and then invest in all the other opportunities that come across the desk. His research supports that that theory pays off.

How do you sort out the lemons? When doing due diligence on companies, go in looking for disconfirming evidence. Play the devil’s advocate and try and find every reason this company could or would fail: Is the industry not growing; Are there huge competitors; Are there unfavorable regulations coming? By intentionally looking for the bad news, you won’t miss something or be inclined to skip over something that seems negative.

Also as Croson points out, it is important to remember the value of research is zero if you don’t plan to make any changes with the information you receive. So when you are presented with the research, be sure that you are taking into account your original intentions and objectives for having sought the research in the first place.

Bizologie Talks Due Diligence with Dallas Angel Investors

Dallas Angels.jpg

Last week we were invited to meet with Dallas-Fort Worth area angel investors and present ideas on how angels can take a more active role in performing due diligence prior to making investments.

The event was hosted by Joe Payton, owner/founder of GeniusDen, a Dallas coworking space and business incubator.

The presentation was based around the premise that hearing a startup founder’s impassioned pitch is often compelling enough to inspire an angel to invest, but should be taken as just one part of a multi-step decision process.  While VC firms routinely apply the concept and practice of due diligence to guide and inform their investment decisions, it is not as obvious nor as widely employed as it should be at the angel stage of investing.  Bizologie presented the various parts of the due diligence process one should consider before making an angel investment, from free financial data sources to licensed tools available to advanced investors.  Attendees learned what pieces of information are necessary to create a full portrait of a potential investment before writing the check.

Thanks to GeniusDen for sponsoring such a great event!