Blog

June 19, 2017
Mitigating Risk for Technology Investments

Today’s technology investors look for information from every angle before determining whether or not to invest in an organization. During all stages of the due diligence process, from determining the viability of the latest start-up to later-stage M&A analysis, investors keep a sharp focus on a company and its ability to support profitability and growth. But, a piece of the puzzle that is often overlooked is an in-depth review of the risks that are often unseen: the intricacies of the technology and infrastructure, whether or not the existing technical staff is strong, and if a company’s processes are in need of critical improvements.

With investors ultimately looking to deliver on the bottom line, finding ways to identify and gauge these types of risks is an important part of the due diligence process.

MVPs and Infrastructure

Minimally Viable Products (MVPs) are designed to be lightweight and help validate customer needs, but what happens when a company’s “product” moves into full production? If an organization’s MVP is not built with a clear roadmap on how to scale (and scale rapidly) companies may lose momentum quickly. By understanding a product’s architecture and supporting infrastructure, and fully vetting a company’s growth plan in relation to its roadmap, investors can quickly understand whether or not a company is poised to meet future demands. Identifying how a product was built and the architecture and frameworks that were employed is critical to understanding any unseen issues down the road, including impact on IP, security vulnerabilities and “ownership” when it comes time for a potential sale.

A company’s technology requirements for growth go well beyond the product itself, so it’s important to understand if a company’s infrastructure is truly poised for the future. An older platform may not perform for tomorrow’s requirements, and what may have once been a state-of-the-art platform when a product was first being built could be antiquated, discontinued or even unsupported when it’s time to go to market. While many early-stage companies can lack the expertise or foresight to choose the right long-term foundation, even mature organizations can find themselves operating on antiquated infrastructure. This means a larger investment will be needed down the road in order to pave the way for growth. To be truly successful, all departments across an organization should have the proper infrastructure and systems in place, and keeping an eye out for these type of risks can help investors better assess the investment opportunity at hand.

Realistic Roadmaps and Attainable Milestones

Some product milestones are missed simply because they were unrealistic from the start, but an abundance of missed milestones may signal that process inefficiencies exist. For investors, it’s important to gauge whether or not an organization has realistic, team-built estimates. Does the company adhere to a predictable and stable process? And can this process be repeated? These estimates and how closely they match reality is the basis for a reasonably achievable roadmap. While it can be tempting for an organization to stray from customer feedback and develop new features based solely on internal ideas, this can often result in missed deadlines or a product that doesn’t quite fit the market. Teams that understand the importance of predictability in planning, estimation, communication and continuous optimization of the process (through both inspection and adaptation) are better prepared to find the best path forward when issues inevitably arise.

An inadequate assessment of a company’s hidden risks can mean substantial further investment down the road. In the same way other aspects of due diligence are performed, by applying a structured and disciplined methodology to the more concealed risks of a potential investment, those related to people, platforms and processes, investors can more fully understand the risks and reward balance of future investments. Comprehensive due diligence that takes into account more than just the financial viability of a firm can better identify the companies and technologies that will not only keep up with the pace of change but stay ahead of it, and incorporating this functional aspect as a regular part of the due diligence process is critical to making a sound investment decision.


Peter Karlson is the Founder and CEO of NeuEon. Follow NeuEon on Twitter: @neueon