Tech DD Myth Busters # 1
Tech DD is only for Large Investment Funds who participate in Series A/B/C or onwards?
Often when I talk to investment fund partners about their processes of Technology Due Diligence for an entity, they ask "But isn't it something for the big funds at a later stage?"
I get it. Given the significant coverage and efforts required in Tech DD, funds may think that it's only for large investments. But the reality is exactly otherwise. When you are investing in early stage startups, the risks pertaining to the platform they are using or the tech-stack they have still remain high.
If the startup is a technology startup it is very critical to ensure that the base technology or platform they are using is actually scalable at a later stage - user wise as well as commercially. Startups often tend to use ready-to-consume APIs as a service in the early stage to save costs. Sometimes these can become a huge cost burden as the usage grows, and requires to be identified early.
Licensing costs of the development platform, databases and infrastructure may seem insignificant, but when your development teams grow to tens of hundreds, it can have a big impact on the business costs.
Sometimes a breakthrough comes from sharing or revealing information that is critical to the user, but it may attract legal or regulatory risks in terms of data security outside some geographies.
Often startups ignore the importance of having remote backups and data security as the teams are small and well connected. This may become a challenge in case of disaster recovery when they grow big.
Tech DD for Startups, is like examining the sapling in the nursery before it becomes a big tree. You can not alter the unwanted outcomes later on easily. The only way is to ensure that things are set well in the beginning so that when the startup becomes a success; the fruits can be sweeter for all stakeholders.
Are you evaluating startups to invest in currently? DM us, and we will see how we can help you to make it safer on the technology front.