AlphaY Newsletter: Why We Don't Want to Replace Final Due Diligence (And Why You Shouldn't Try to DIY It Either) 🤖⚖️

Hey AlphaY fam! 👋

So we got dragged into a spicy SearchFunder discussion about using local LLMs for due diligence, and our CEO Eric couldn't help but drop some truth bombs 💣. A few of you have been asking: "Why isn't AlphaY trying to automate the whole DD process? Can't I just do it myself with AI?"

Let us explain why that's like asking "Can I perform my own surgery with YouTube tutorials?" 🩺😅

The Great DD Debate: What Happened 🍿

Robert from SearchFunder asked if anyone was using local LLMs (like Llama 3.1 405b) for automated due diligence. The responses were... chef's kiss ... a perfect case study in why this space is so tricky.

The Good: People are definitely experimenting! 🧪 The Bad: Mixed results everywhere 📊
The Ugly: One team tried for 9 months and pivoted 🔄

Our Hot Take: The Hybrid Approach 🔥

Here's what we learned from our own journey (and why we pivoted from trying to "solve" DD):

✅ What AI is Actually Good At:

• Market research & competitive analysis 📈 (Brave/Tavily + Thinking Models (we like perplexity with a focus in trusted sources)

• Tech stack assessment 💻 (Thinking models are great at initial assessments)

• Document summarization 📄 (Local models are perfect here)

• Pattern recognition 🔍 (Though large local models still have error rates that make us nervous, think human in the loop here)

⚙️ What Rules-Based Systems Should Handle:

• Financial calculations 🧮 (Math doesn't lie, models sometimes do)

• Risk metrics ⚠️ (Consistency is key)

• Data validation ✅ (both local and clud models do a great job)

🚨 What You Absolutely Need Humans For:

• Legal & regulatory stuff ⚖️ (Please don't let an AI write your final LOI)

• Final valuations 💰 (Your bank account will thank you)

• Tax implications 📋 (The IRS is not known for their sense of humor)

• Industry expertise 🎯 (Context matters, a lot)

Why We Didn't Try to "Solve" Final Due Diligence 🤔

At AlphaY, we absolutely could have built a "full DD automation platform." But here's the thing - we didn't want to send the wrong message 📢.

Due diligence isn't just a checklist. It's about understanding risk, validating assumptions, and making sure you're not about to buy someone else's nightmare 😱.

Instead, we focused on what we do best: helping you get to a yes/no decision faster in the early stages ⚡. Think of us as your AI-powered deal triage - we help you surface red flags around industry growth, deal structure, and market positioning before you spend serious money on professionals.

Our Recommendation: The N8N Prototype Approach 🛠️

Want to experiment? Start here:

1. Use N8N for prototyping (great for testing workflows and has fairly good agent nodes)

2. Local AI agents for data extraction/normalization (they're surprisingly good at this)

3. Keep humans in the loop 👥 (seriously, don't skip this)

4. Test everything with seed data 🌱 (AI can help generate test cases)

5. Deploy early in the process ⏰ (before you're writing big checks)

The Apple Paper Plot Twist 🍎

Apple's recent paper on thinking models. While it highlights real challenges with reasoning chains, the conclusions might be overblown since, FOR NOW, models are optimized for speed with limited context windows so they have trouble with both long chains of thought and simple problems🏃‍♂️💨.

Think of it like this: You wouldn't judge a Formula 1 car's fuel efficiency or ride comfort, and you shouldn't judge speed-optimized thinking models on tasks that are above and below what it was built for.

Bottom Line 🎯

AI should augment your DD process, not replace it. Use it to:

• Get faster initial reads on deals 📖

• Spot obvious red flags early 🚩

• Normalize messy data 🗂️

• Research markets and competitors 🔍

But when it comes to the stuff that could make or break your deal? Call in the professionals 📞.

P.S. If you're wondering why we're not trying to "disrupt" the entire DD industry, it's because some things shouldn't be disrupted - they should be enhanced 💡. We'd rather help you make better decisions faster than help you make faster decisions poorly.

P.P.S. Shoutout to the SearchFunder community for keeping these conversations real 🙌. The fact that multiple people are experimenting (and honestly sharing their failures) is exactly how this space evolves.

Stay smart, stay curious, and maybe don't try to automate everything 😉

The AlphaY Team 🚀

Want to see how we're using AI to enhance (not replace) early-stage deal analysis head over to Alphay.io?  📧