Technology due-diligence strategies
Investors are up against increasing complexities as technology evolves so quickly. This means the risks are higher, but with the right approach from experienced partners, investors can make more infor
Whilst the obvious aspects of technology due-diligence need to be taken into account (e.g. system architecture and software design cyber security, infrastructure and deployment, usability of their GUI, etc.) there are some crucial factors to consider, given the dynamic nature of the tech industry, combined with the volatility of early-stage tech ventures.Evaluating a tech firm is more that data alone.
Three top tips from our extensive CTO tech background in software and technology include:
The strength, experience, and, critically, cohesion of the founding team are vital during discovery. We look for a team who can articulate a clear vision, showing relevant industry experience, and how they have been able to pivot to get this far. We look for indicators of risk that include high turnover, lack of technical leadership, or founders who don’t a solid track record: we saw this recently with a scale-up firm that didn’t have a strong CTO and they suffered a serious cyber attack due to not having a strong technical background, leading a team that was too junior.
Is the software proprietary or easily replicated? Has the startup filed patents or developed defensible intellectual property? We help clients assess whether the tech is scalable and whether it can sustain a competitive advantage, especially when AI is shaking up business models that are repeatable and easily replicated by large-language models.
How are they demonstrating product-market fit? What is the actual demand for the product, and does the ARR show there is a runway for growth at scale? The firm must have data to prove they are on top of a pressing problem and developed a solution people are willing to pay for, and that has features developed and on the product roadmap that are more attractive than competitor offerings. We look for user traction, engagement metrics, and feedback from early adopters to validate what the leadership team talk about.
We are cognisant that your primary objective is generating a healthy return for investors, and that means putting your capital into a venture that has risks. With our help, we believe you will be able to manage those risks, both at the onset and on an ongoing basis.
If you’d like to bring in a technology due-diligence partner who can blend scepticism, insight, and vision, then we can help you evaluate the team, technology, market, so you can make more informed and confident decisions.