Startup CXO

Chapter 105Due Diligence and Lessons Learned from a Sale Process

As the company grows, you will have opportunities to accelerate growth or fill a hole by acquiring another company. At Return Path, I ran technical diligence on over 10 companies—acquiring five of them. Here are some of the things that a Product or Engineering leader needs to know about doing buy‐side diligence.

First, you have to understand the purpose of the acquisition. Are we doing this to fill a hole in our product offering, do we need this technology, or are we really interested in the team as more of an acqui‐hire? Next, you should evaluate if buying this company is the only or best way to get this product, technology, or team. Can we grow the team a bit and build it ourselves? Can we partner with a company or license the technology? Really think through the long‐term implications of acquiring a company. Sometimes the opportunity and acquisition come together so easily that it distracts you from the deeper issues of integration—and that's where the real challenges are.

The product could look great on the surface but be hard to use or hard to sell; the business could have legal, financial, or data privacy risk deep in the past that you aren't aware of; the technology could be a pile of shortcuts held together by a hero engineer who isn't planning to stay after the acquisition; the team may look like a culture fit on the surface, but are used to operating differently and aren't going to make it through the ...