Managing Startups: Best Blog Posts

Chapter 71. Selling or Funding a Startup? Tips on Surviving Technical Due Diligence

Karl Treier

Be Better Prepared for Technical Due Diligence

I have been on the receiving end of several technical due diligence assessments instigated by VCs (pre-investment) or acquirers (pre-purchase). I have also been the inquisitor on a few occasions. So I thought it might be worthwhile to write this post to share my thoughts on this process and hopefully help companies better prepare for this event.

The first thing to recognize is that the assessor is not there to catch you out, trip you up, or somehow prove you are incompetent, nor is it likely that he’s there to try to steal your job—so first and foremost, don’t be threatened or intimidated (it’s not the Spanish Inquisition; after all, “Nobody expects the Spanish Inquisition!”). It is, however, extremely likely that he is, or has been, an entrepreneur and empathizes with you, so be cooperative and cordial (maybe even downright friendly). The assessor will understand the challenges and the realities of startup, rampup, and speedup life and will not be expecting perfection. I personally would love it if every entrepreneur could get funded, or exit with an acquisition that gets them the rewards they have worked so hard to attain, but the reality is different. Remember, however, the assessor is contractually obligated to do a thorough evaluation and report honestly any deficiencies; to not do so would risk a lawsuit for negligence. Also keep in mind ...