Disqualifying Question

The single question, derived from your thesis, whose wrong answer ends the conversation regardless of everything else about the opportunity.

Example

For a thesis that these products are bought by the daily user rather than the owner: "of the last twenty demos, how many were booked by someone who would use the product daily?"

Important

It must ask for a fact rather than an opinion, and the wrong answer must be decided before you ask. A threshold set while looking at a founder you like will move.

Related terms

  • Investment thesis — A written statement of what you believe about an investment, at what price it is worth owning, and what specific observation would tell you that you were wrong.
  • Deal killer — An established finding that no achievable price can address - because the asset stops being the asset, because the exposure has no floor, or because the counterparty has been shown to be unreliable.
  • Due diligence — The work of independently verifying the claims made about an investment before committing money to it - the documents, the counterparties, the registrations and the numbers.

Lessons that explain it

  • How many do you have to see to make one investment? — Put real numbers on your funnel and two things become obvious: how fast a first look has to be, and how much sourcing you actually need to support the portfolio you are trying to build. (12 min)
  • A process you actually run beats a better one you do not — Screening only compounds if it is written down, identical every time, and produces a record - which is what turns a year of declined opportunities into knowledge about a category. (11 min)
  • Spend the first meeting listening for what is specific — A first meeting is for finding out whether the opportunity fits your thesis and whether the founder's claims are specific enough to check. Structure it, ask for facts, and leave with a clear next step. (11 min)
  • Four sections decide the vote; the rest is context — A memo can run to fifteen pages and still be decided on four of them - the thesis, the bear case, the return math and the terms. Everything else is background that makes the reader feel informed without changing the answer. (11 min)
  • The committee's job is to break the memo, not approve it — An investment committee that never says no has stopped being a check on anything. The difference between a real pressure test and a rubber stamp is almost never visible from the approval rate alone. (13 min)
  • The first forty minutes decide the next forty hours — A thesis is only worth writing if it changes what you do at intake. This is the mechanics of applying it fast enough to protect the time it was meant to protect. (13 min)

All 578 terms in the Investing glossary