IT Due Diligence Preparation For Startups

 Introduction

IT Due Diligence assessments are typically commissioned by investors if the startup is either a SaaS business or one where the technology represents significant value in the business growth plan.

Startups are often lauded for their innovation, creativity, and risk-taking. But these same qualities can also lead to problems in IT and SaaS-driven businesses. Technology Due Diligence

As startups tend to focus more on building new features than on sound processes. This focus on new features can lead to data breaches, tech debt, and other costly problems.

Our role is to assess the value that tech presents in your business, how it’s built and evaluate the team that makes the tech.

Let’s look at what IT due diligence is and how you can prepare for it.

IT Due Diligence isn’t about the tech; it’s about YOU

The investor is investing in you, not just the P&L. They need to understand your vision, what makes you tick, how you make decisions and most importantly – how you manage challenges.

Hence a major consideration is the management team assessment. We won’t be asking you specific questions about your leadership or management style. We will get a sense of both from our conversations about your technology.

For instance, a discussion on how you (or your CTO) decide what goes into the tech stack – and how you manage tech debt will provide a good insight. Note I can give this away as it’s not the type of thing people can fix or lie about – when we marry up what you say with the data we collect, we’ll be able to see a through-line.

But we cannot assess an FTSE 250 team similarly to an early start-up. So, depending on your journey, we will assess your team under different criteria.

Your-startup-maturity-determines-how-we-assess-it-during-IT-Due-DiligenceDownload
Stage One: Churning

During the churning phase, the business is a moving target – hundreds of ideas are tested; people move in and out, and there’s general volatility.

A very early stage company, possibly pre-revenue. We don’t often assess these firms, but it’s worth noting how we would assess them differently. In summary, we have low expectations and are more forgiving. These early-stage startups are churning through new ideas and concepts until they get a glimpse of traction.

From a technology perspective, the tech footprint will likely be small and insecure, and we assess accordingly. We will be looking at data sources and how data is stored as often both can have issues or create longer-term risks.

This uncertainty is exciting for some founders, but some rigour is needed, and we need to understand if management is keen to learn the more ‘boring’ aspect of better governance and controls.

Without either, it is still possible to scale your business, but it often comes at a cost later, so it’s good to nip it in the bud during the early stages.

Stage Two: Learning

This is where things get interesting and usually where investors we work with tend to get involved.

You’ve got product-market-fit or close to it, and you’re looking for help to scale what you have already proven. Hopefully, there is minimal investment/innovation is needed from the technology perspective.

We generally refer to this as a ‘more of the same’ investment.

At this stage, we’re curious to understand the team’s learning capability as they will need to develop new personal skills, which typically means maturing their approach to running their business.

We will put you under more scrutiny regarding how you govern your environment, and there’ll be less acceptance of ‘nuances’ that could extrapolate into bigger issues in the future.

Lastly, we will also assess management’s openness to working with others – as the best-performing teams don’t do it all themselves. They have the humility to understand their strengths and reach out to partners or experts for guidance.

Stage Three: Earning

At this stage, your firm has a healthy number of customers and your technology has proven its worth. Now you have the options of internationalising or growing through innovation.

As you can imagine, this later stage is more complex. How well will the management team ‘keep the lights on’ whilst innovating growth? What cracks will we see in the overall operating model? By this stage, are commercial operations working well with the technology function?

Overall we’ll be assessing your team from an efficiency and operational perspective and ensuring your technology and product roadmaps (which translates to ‘spend’) clearly demonstrate a return on investment. Simply, you need to be better at strategy, operations, cyber, innovation etc. The list goes on.

IT Due Diligence is a collaborative, positive experience

It’s easy for me to say, but IT Due Diligence isn’t something to be concerned about. But there is a sense of nervousness from management when projects commence. That’s understandable. We’re looking ‘under the hood’ of your environment – but we are there as collaborators, not auditors.

Most early-stage SaaS/technology businesses will benefit from a short, rigorous assessment as it typically helps uncover both risks and opportunities for the investor – potentially making your firm more attractive to invest in.

Plus, if an investor recommends IT Due Diligence for your startup, it signals they are serious about the investment opportunity. So, we say, bring it on!

For More Info: Tech DD