ChatGPT and Other AI Models as a Due Diligence Tool: Benefits and Limitations for Private Firm Investment Analysis

Abstract

ChatGPT and other general AI models are increasingly being used for investment due diligence, but they face challenges when evaluating private firms. This is because private companies are not required to disclose as much information as public companies, and the information that is available is often less standardized and comprehensive. Additionally, private markets can be complex and opaque. Machine learning techniques can be used to overcome some of the challenges of evaluating private companies. For example, sentiment analysis can be used to extract insights from unstructured data, such as SEC filings, social media posts, and news articles. This information can also be used to construct a database of structured and unstructured data for evaluating private firms. However, it is important to be aware of the limitations of AI models when evaluating private companies. For example, AI models may not be able to understand the nuances of a private company's business model or its competitive landscape. As a result, it is important to use AI models in conjunction with other due diligence methods, such as traditional financial analysis and industry research.

Keywords: ChatGPT, due diligence, private equity, crowdfunding, artificial intelligence

JEL Classification: G24, G32, L86, M10