The one thing you can always de-risk
"The possibility that something unpleasant or unwelcome will happen."
That is how the Oxford Dictionary defines risk. De-risking is the process of making it very (or completely) unlikely that such an unpleasant eventuality will come to pass.
I recently discussed the "why" of technology due diligence with a potential client. This company did not require any convincing that a technical assessment is a good idea - they already knew this. I found their reason for wanting to do a technical due diligence very interesting - and that brings me to the topic of this post.
Organisations and investors have a variety of motivations for undertaking technical due diligence. From time to time it is a procedural requirement of their investment process. Occasionally it is to gain insight into a part of the business they do not understand (many business managers are unfamiliar with the workings of the "IT guys"). Sometimes it is to minimise the risk of the investment.
Investors face a number of risks - risks related to the business model, the management team's ability to execute, legal and regulatory risks, risks related to the country in which they invest, and more. Many of these are entirely out of the control of the investor, such as risk related to the political stability in the country. Some of these can be mitigated in certain circumstances. For example, it may be possible to coach the management team, thereby reducing the risk of non-execution. But this depends on the management team's "coachability" and willingness to cooperate.
Our prospective client phrased it like this - "we invest in risky businesses and countries. The least we can do is de-risk the one thing that is in our power to de-risk - technology."
The one risk that can always be de-risked is technology.
This is true, because it is possible to gain objective insight into the quality of the software and the team responsible for maintaining it. The task can be accomplished by performing a technology due diligence, or technology assessment. This type of analysis will give you an awareness of where the gaps are, and the nature of these gaps. As part of the assessment, you can commission a roadmap to be drawn up. A technology roadmap will help you formulate a plan to fill the gaps - and will give some idea of what it may cost to do so. There are many ways in which an investor can help to fill the gaps. Providing technical mentorship to the team, and helping to find technical resources are two of the most important. In this way the chance that something unpleasant will happen can be reduced to a very small possibility.
If you are investing in a company that relies on the reliability and suitability of its technology, it is incumbent on you to get to grips with this one aspect of risk that you can address.
Rosewood Due Diligence specialises in technology due diligence and technology assessments. Our experience is focused on emerging markets - those very same places where technology is often the only thing an investor may be able to de-risk.
For more information, contact us on firstname.lastname@example.org