Sort what you know from what you assume from what nobody can know yet

Before deciding, separate verified evidence, assumptions that could be tested, and genuine unknowns. The decision is about whether the unknowns are acceptable at this price.

10 min read · Level 4

The point

I think a decision memo that contains no unknowns is either about a very late-stage company or not being honest. Naming what nobody can know yet does not weaken the case for investing; it shows exactly what the investor is being paid to accept.

What is it?

After diligence, sort every important claim into one of three groups:

Group What it means Example Evidence verified from independent sources retention confirmed from billing data Testable assumption could be checked but has not been customers will accept a 20% price increase Unknown cannot be known before investing whether a large competitor enters the market

Then ask three questions:

Which testable assumptions are load-bearing? Test them before deciding, or accept that you are guessing.

Which unknowns could make the investment fail?

Is the price low enough to compensate for the unknowns you are accepting?

A decision table for one company:

Evidence (5) ARR, retention, founder backgrounds, IP ownership, cash Testable (3) pricing power, sales cycle at scale, hiring pace Unknown (2) competitor response, regulatory change Load-bearing pricing power (testable), competitor response (unknown)

Why does an investor care?

Because investors often treat assumptions as evidence once they have been repeated enough times in meetings. Sorting claims into groups makes visible how much of the decision rests on things nobody has checked.

It also shows where more diligence would actually change the decision, and where it would only feel reassuring.

Educational, not personalised financial advice. Nothing in the Investor Academy is a recommendation to buy, sell or hold anything — what is right for you depends on your own circumstances and the rules where you live.

Example

Deciding what to do next.

Pricing power is testable and load-bearing. The investor asks the company for results of last year's price change on existing customers and for three calls with customers who received it. The data shows churn did not rise after a 15% increase - the assumption becomes evidence.

Competitor response remains unknown and cannot be tested. The investor accepts it but lowers their walk-away price to reflect it, and records it as the main risk in the decision record.

The common mistake

Continuing diligence on claims that do not affect the decision, while leaving the load-bearing assumptions untested.

How it works

Step 1: Sort claims into three groups

Label each important claim as evidence, testable assumption or unknown.

Step 2: Identify what is load-bearing

Mark the claims that would change the decision if wrong.

Step 3: Test load-bearing assumptions

Focus remaining diligence there.

Step 4: Price the unknowns

Decide whether the price compensates for the risks you cannot remove.

When to use this

At the end of diligence, before making an investment decision.

When not to use it

Do not expect to convert every unknown into evidence; early-stage investing always involves accepting some.

How investors actually did it

A recurring pattern: discovery-driven planning

Management researchers Rita McGrath and Ian MacMillan described discovery-driven planning, which asks ventures to list assumptions explicitly and convert them into knowledge through checkpoints, because plans under uncertainty are dominated by untested assumptions.

Making assumptions explicit is the first step to testing the ones that matter.

Do this now

Sort the five main claims about one company into evidence, assumptions and unknowns
Mark which of them is load-bearing

Create a free account to read the rest and apply it to your own investing.

Related lessons

What you were told, what you inferred, and what you checked — Almost everything that later turns out to be wrong was never actually verified - it was assumed, because it arrived alongside things that were true. (10 min)
If nothing could prove you wrong, you have not said anything — A thesis becomes useful at the moment it names what would refute it. This is how to write that line so it is checkable rather than rhetorical. (12 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)