Following on from our previous post linking to a great article on “How to Survive Technical Due Diligence“, here’s an equally good, and equally detailed, set of posts from Mike Dunn, VP at Hearst Interactive Media covering his methodology for performing technical due diligence in the digital media industry.
We spend a lot of time reading about current thinking in tech diligence, so this is unlikely to be the last addition to our previously posted list of interesting articles about technology due diligence.
Today’s addition is an impressively detailed set of articles about DD in the IT industry from Michael Sisco, a CIO with vast experience.
The index of all the installments doesn’t seem to appear until the final article, so here’s a full set of links for the entire series:
There’s someone else who should be included in a technical due diligence assessment.
Someone other than the engineers, the technicians, the management team, the technical advisers, the industry veterans…
This person is often completely overlooked, but he or she will give a more impartial view of the product, often understanding its limitations better than the engineers who created it. And, ultimately, this person has a greater influence over a product’s success or failure.
Here’s a sobering thought for any private equity investor: losing a data centre is usually catastrophic.
In 2002, 93% of companies that lost their data centers to a disaster for more than 9 days filed for bankruptcy within a year*.
Open-source sounds great for small technology companies. What can be better than free software if you’re on a tight budget?
But David Boutcher and Bob Stankey of law firm Reed Smith have just published an insightful article in Computing Magazine highlighting some of the pitfalls; what they call “Open Source’s Dark Side“.
Here’s a great piece from Bob Pasker, CTO-in-Residence at Azure Capital Partners, titled “A High-tech Entrepreneurs Guide to Surviving Technical Due Diligence“.
It’s a comprehensive set of advice for any company that finds itself the subject of a technical due diligence assessment (and good recommended reading for anyone about to undergo a Remarkable Innovation due diligence assessment!).
Talking to engineers is an important part of a technical due diligence assessment.
Technology is paramount, but when we’re assessing a company for possible acquisition we always spend a lot of time looking at the technical personnel as well. Our assessors usually interview all the engineers and dig into experience, motivation, working styles, staff cover and so on.
Here’s a great example of one of things we’re looking for:
If ever there was a vindication of the need for technical due diligence, this is it. It seems that an issue arising during the TDD may have caused Google to walk away from a $200 million acquisition of Digg.
It’s a strong example of how crucial the technical assessment can prove to be.
We’ve been saying for a long time that technology due diligence is a critical part, if not the most important part, of the investment preparation process. It seems in this case that Google would agree.
Technical due diligence is just about finding fault.
Right?
Examining the technology; looking for shortcomings that might affect your investment.
Well actually, not quite.
Interesting things happen when you bring in fresh eyes to look at a technology business. Eyes belonging to an expert who understands the business, but isn’t blinkered by submersion in it.
An interesting post on Techcrunch today tells of a company that’s about to go public, allegedly relying on an internet scam for most of its revenue.
The final paragraph points out that the scam appears to have been overlooked during the due diligence done so far.
The problem is that traditional legal and financial due diligence aren’t set up to spot problems like this.
Would proper technology due diligence have uncovered the issue?
The answer should be yes. A good technical due diligence will examine how technology is being used to contribute revenue.
Have the due diligence teams involved in this deal been a little too reliant on the soundbite method?