Tech DD Result - When is it Bad ?

Why do we do a technology due diligence ? The primary purpose is to provide our customers with the information necessary to evaluate the risks, costs and opportunities associated with the technology dimension of any investment or acquisition. These risks can range from security concerns, to scalability issues, to non-compliance with regulations.

In many cases the risks can be mitigated by a straightforward intervention - for example by performing a security audit and systematically closing the gaps.

Sometimes, though, a platform or team appears to be in an irremediably bad position. It does not happen very often that we strongly advise against investing in a business because of technology related concerns. But it does happen occasionally that the result of a Tech DD is irremediably bad. Here are a few real-life cases we've come across where we advised against investing.

Admittedly this does not often happen in well established businesses (with some infamous exceptions). We've mostly encountered this in very early stage startups that are being vetted for enrolment in accelerators, or incubators. In these cases the PowerPoint presentation tells the story of a sophisticated platform - while the reality is an excel spreadsheet and a Whatsapp channel.

This is a "no" from us.

A technology driven company is nothing without a solid and talented team of developers and engineers who build the product. We've encountered a few very dysfunctional teams. In one case we interviewed a CTO and asked to interview senior engineers separately. Interviewing them separately provided us with an opportunity to receive honest feedback from the engineers, including that they were all looking for new opportunities.

It is hard to recommend investment in such an organisation when the talent is disillusioned and on the verge of departing.

Very rarely do we come across technology that simply does not work, or has been so poorly implemented that it will require a complete rewrite of the platform to fix. We've seen cases where the database design was so badly done that it required enormous hardware resources to execute a simple query. In other cases no critical analysis or thought had been given to architectural considerations - what started as a proof of concept (and should have stayed that way) was used in production, leading to a code base that cannot be maintained and is not scalable.

In cases like these the technology can be fixed - provided the technology team is willing to do so. We won't say "no" to the investment, but we will advise investors to carefully consider the cost of refactoring the platform.

In conclusion - "Bad" in the sense of technical due diligence is not a clear cut concept. Sometimes the cost of fixing a technical platform is acceptable if a business is dominant in a market. But if there is no technology or team to speak of then the situation can safely be classified as "bad".

Rosewood Due Diligence can help you decide whether your investment is "bad", or merely needs some fine tuning. To date we have conducted more than 150 due diligences across multiple sectors and in countries across the globe.

Strict confidentiality frameworks and processes apply to all our work. These examples are shared without any prejudice to any of our clients. For a personal conversation or to schedule a call contact partners@rosewoodd.com