What is a Data Aggregator?
Database aggregators compile large amounts of data and records into a centralized, searchable database. Some are well-suited to specific industries or use cases, like business intelligence or market research, while others are designed for due diligence.
On one hand, due diligence data aggregators are highly convenient, inexpensive, and multi-use, making them a great tool for the initial stages of due diligence. However, they’re a software tool—not an expert. While data aggregators provide access to large amounts of data quickly and effectively, relying on them alone is insufficient.
Data Aggregators in Due Diligence
One of Vcheck’s clients recently encountered a major problem with data aggregators that resulted in a large regulatory fine. As a commercial real estate firm (CRE), the company regularly used data aggregator-generated reports for their financial and KYC diligence.
Unfortunately, one of the CRE’s lenders withheld a criminal offense, and the report generated by the data aggregator didn’t include the charge, causing it to fall through the cracks. As a result, the firm in question was fined over $100,000 and received a notice from the U.S. Department of Housing and Urban Development.
Today, they exclusively work with Vcheck, trusting the firm to manage its due diligence reporting and monitoring.
The CRE firm’s fine highlights a few key data aggregator drawbacks: limited scope, lack of verification, data lag, and poor context.
Data Aggregators Provide Limited Scope & Poor Verification
Much like a search engine, database aggregators provide information and reports. Unfortunately, much of this intelligence is limited, and searching insufficient evidence yields insufficient insights and results. Similarly, these tools cannot provide what they cannot access, translating to poor verification.
Data aggregators often forego crucial components of the due diligence process. While they can provide valuable data points such as financial performance, industry reports, and basic company information, they often lack the nuanced insights critical for thorough due diligence.
As with the CRE firm, and because litigation and information change so frequently, data aggregators can propagate errors, inconsistencies, and misinformation. As a result, these tools cannot properly mitigate risk.
Data Aggregators Cause Data Lags
A database aggregator is only as strong as its last update. In other words, database aggregators rely on data from specific sources, and often experience lags when updating their information.
Data aggregator due diligence reports may not reflect regular developments like legal issues, leadership changes, and employment shifts, which causes delayed decisions based on outdated information.
Aggregators Yield Poor Context & Disparate Insight
Aggregators provide raw data without nuanced contextual analysis or expert-led insight. However, such insight is crucial to identifying potential red flags and mitigating risk.
For example, database aggregators present financial data but aren’t designed with an understanding of industry-specific nuances and market trends. Understanding that a company or individual is involved in litigation and understanding the implications of that litigation is entirely different: Only due diligence providers using human-led insight can understand the contextual implication of that litigation on business operations and reputation.
Qualitative insights are crucial in due diligence and are typically not captured by database aggregators. Ensuring comprehensive public records due diligence is not merely about accessing databases and conducting research online; it’s about ensuring the research is as exhaustive as possible.
In contrast, Vcheck uses the following tools to catch what database aggregators regularly miss:
- Discrete Interviews color an investigator’s report and provide essential context into an individual or company’s competencies, vision, and strategy.
- Court-runners are individuals who identify gaps between digital records and physical records. This is crucial, as 30% of courthouse records aren’t available digitally, meaning database aggregators lack access to a critical percentage of records.
The Value of Human-Led Insight
At Vcheck, database aggregators are a crucial first step to our process—not its entirety. While these tools are a valuable starting point for gathering basic information, they are not a substitute for comprehensive due diligence.
Effective due diligence requires combining quantitative data and qualitative insights, contextual analysis, and real-world assessments. A holistic approach mitigates regulatory and reputational risk, ensuring confidence in the business landscape.
Contact Vcheck to learn more about our human-led processes and how we mitigate risks missed by data aggregators.
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