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Venture Capital
by tj on October 14, 2004
Marc Goldberg thinks about outsourcing the technology due diligence process and enlists the 10 Q's - a great help for anybody entering a technology investment round:
"Investment executive will meet a company before a complete technical screening has been performed, and will perform a high level technology assessment. This assessment will always be followed by a more thorough technical due diligence.
The focus of the technology questions should be the following one:
� If the investment is focused on technology: does the technology work, support the business model, have unique defendable value, have the ability to create a platform, and is development/engineering managed effectively?
� If the investment is focus on business: does the technology work, and is it produced in a controlled, predictable, managed way (inside or outside the company)?
The Ten Qs
1. Demonstration (can it work)
� Go through a demonstration of the product, does it work?
� Can you clearly identify the potential users ?
� Can you link the features of the demonstration with the business model?
� Get an explanation of the use case (usage scenario) first, and then try and relate to it.
2. Context (what environment does the system assumes)
� What hardware, connectivity, software & services to perform the demonstration?
� In the case of web-based applications, what kind of component downloads are required ?
3. Trends (what technology trends does the system ride?)
� What key technology trends does the systems leverage (Java or Microsoft camp) ?
� In the case of multiple vendors providing the same technology, does the product work across vendors (e.g. Internet Explorer and Netscape, or BEA WebLogic and IBM WebSphere)?
4. Innovation (what is new from a technology perspective)
� If this is a technology play, what is new?
� Who does it compete against or complement?
� Which existing standards does it follow/leverage?
� What new standards does it try to define?
� What kind of API will be published (to whom, when, get a copy of any documentation that exists today) ?
� Which languages will be supported by the interface (Java, C++, XML,�) ?
5. Defendability (what is defendable from a technology perspective?)
� If this a technology-play, what is legally protected? If patents have not been granted yet, ask for a copy of any patent application.
� If no patent applications have been filed, have they searched for potential patent breach?
6. Architecture (is it explicit and documented):
� Can the company share with you an architecture description of the product (solution), for example in the form of a White Paper?
� Have them describe the main elements of the architecture, and which standards it adheres to (J2EE, .Net, standard 3-tier,�).
7. COTS (is it build on existing technology)
� What commercially available off the self technology or product are used inside the system, or within the company development group?
� Have any bespoke developments being implemented by COTS vendors, and if yes, who supports them?
� What is the licensing model being used for COTS components? Is there a revenue share element?
� Try and assess the relative value of the COTS components vs. the offering of the company, assess whether it is simply a re-packaging targeted towards a specific vertical.
8. Performance (how well does the development team meet objectives)
� What is the track record of the development team in meeting release dates and content?
� How much challenge does the current plan pose for them? What is their comfort factor and the planned margin for the current release.
� Is speed and TTM the main driver of the technology group? Or is it functional completeness and quality?
� Does each team member have well defined goals? Are those goals enforced by the organisation through a thorough project management process? Ask for a copy of Pert and Gantt charts.
9. Development Process (how does this organisation develop software)
� If the development team is internal: understand the size, and various roles inside the group, what process is used for developing the software?
� Are all team members aware of process guidelines? Does the organisation enforce compliance with its process? Is efficiency measured and rewarded as one of the key drivers of success?
� Does the organization have a systematic approach to process, through a dedicated team or function? Is quality measured and rewarded as one of the key drivers of success? Ask for the quality plan, and any quality-related metrics.
� If the development team is external: what SLAs and contracts have been defined with the external R&D group? Get reference of similar systems developed by the external group.
10. Portfolio (does it compete and are there synergies?)
� Does the company compete with any existing technology offering of any portfolio company? If this is the case, could this technology be considered second generation compared to the investment we have?
� Can we leverage other portfolio investment within the new investment? Can this company leverage existing portfolio technology or services?
� If the company is already working with someone in the portfolio get all available details.
"Investment executive will meet a company before a complete technical screening has been performed, and will perform a high level technology assessment. This assessment will always be followed by a more thorough technical due diligence.
The focus of the technology questions should be the following one:
� If the investment is focused on technology: does the technology work, support the business model, have unique defendable value, have the ability to create a platform, and is development/engineering managed effectively?
� If the investment is focus on business: does the technology work, and is it produced in a controlled, predictable, managed way (inside or outside the company)?
The Ten Qs
1. Demonstration (can it work)
� Go through a demonstration of the product, does it work?
� Can you clearly identify the potential users ?
� Can you link the features of the demonstration with the business model?
� Get an explanation of the use case (usage scenario) first, and then try and relate to it.
2. Context (what environment does the system assumes)
� What hardware, connectivity, software & services to perform the demonstration?
� In the case of web-based applications, what kind of component downloads are required ?
3. Trends (what technology trends does the system ride?)
� What key technology trends does the systems leverage (Java or Microsoft camp) ?
� In the case of multiple vendors providing the same technology, does the product work across vendors (e.g. Internet Explorer and Netscape, or BEA WebLogic and IBM WebSphere)?
4. Innovation (what is new from a technology perspective)
� If this is a technology play, what is new?
� Who does it compete against or complement?
� Which existing standards does it follow/leverage?
� What new standards does it try to define?
� What kind of API will be published (to whom, when, get a copy of any documentation that exists today) ?
� Which languages will be supported by the interface (Java, C++, XML,�) ?
5. Defendability (what is defendable from a technology perspective?)
� If this a technology-play, what is legally protected? If patents have not been granted yet, ask for a copy of any patent application.
� If no patent applications have been filed, have they searched for potential patent breach?
6. Architecture (is it explicit and documented):
� Can the company share with you an architecture description of the product (solution), for example in the form of a White Paper?
� Have them describe the main elements of the architecture, and which standards it adheres to (J2EE, .Net, standard 3-tier,�).
7. COTS (is it build on existing technology)
� What commercially available off the self technology or product are used inside the system, or within the company development group?
� Have any bespoke developments being implemented by COTS vendors, and if yes, who supports them?
� What is the licensing model being used for COTS components? Is there a revenue share element?
� Try and assess the relative value of the COTS components vs. the offering of the company, assess whether it is simply a re-packaging targeted towards a specific vertical.
8. Performance (how well does the development team meet objectives)
� What is the track record of the development team in meeting release dates and content?
� How much challenge does the current plan pose for them? What is their comfort factor and the planned margin for the current release.
� Is speed and TTM the main driver of the technology group? Or is it functional completeness and quality?
� Does each team member have well defined goals? Are those goals enforced by the organisation through a thorough project management process? Ask for a copy of Pert and Gantt charts.
9. Development Process (how does this organisation develop software)
� If the development team is internal: understand the size, and various roles inside the group, what process is used for developing the software?
� Are all team members aware of process guidelines? Does the organisation enforce compliance with its process? Is efficiency measured and rewarded as one of the key drivers of success?
� Does the organization have a systematic approach to process, through a dedicated team or function? Is quality measured and rewarded as one of the key drivers of success? Ask for the quality plan, and any quality-related metrics.
� If the development team is external: what SLAs and contracts have been defined with the external R&D group? Get reference of similar systems developed by the external group.
10. Portfolio (does it compete and are there synergies?)
� Does the company compete with any existing technology offering of any portfolio company? If this is the case, could this technology be considered second generation compared to the investment we have?
� Can we leverage other portfolio investment within the new investment? Can this company leverage existing portfolio technology or services?
� If the company is already working with someone in the portfolio get all available details.
Permalink: outsourced due diligence
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Vote for outsourced due diligence:
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Rating: 6.00 out of 1 vote(s) cast.
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Response from:
Marc Goldberg
(10/14/04 6:41pm)
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The idea about open-sourcing it was and is to get feedback to we can improve it
Marc.