investment fund management tips

Top 5 industries where Tech-DD is a must

During one of my consultation calls last week, a member from VC partner firm asked, “Tell me top 5 industries where Tech DD is a MUST”.

I was tempted to answer, “there can’t be such a list of top 5 industries” But I knew the thought behind asking this so I gave her my opinion.

Quite often, Tech DD exercise is looked at something which is very costly and time-consuming activity. Some funds also feel, it will only bring a bad news. I get this thought process and so I have few Myth Buster Articles on these topics too.

So the question was natural. Just give us top 5 industry names where Tech DD can’t be optional and we will perform Tech DD only when we invest in such industry platforms.

So here it goes.

  • Fintech: Undoubtedly this tops the list. For all obvious reasons like compliance, regulations, business continuity, financial losses, regular Tech DD is a MUST for Fintech Platforms.
  • Healthcare: Since it pertains to handling user’s health data; from data protection, information security and regulatory perspectives, all Healthcare start-ups must undergo periodic Tech DD.
  • D2C:As the name suggests, here consumer interaction is direct, volumes are high, customer service is critical, so Tech DD is must from these aspects.
  • AI / ML: This is a new age mantra for many start-ups to prove they are building / serving something innovative so they will just include AI/ML capabilities. But funds must evaluate current capabilities and scalability of such technology being used to build and maintain the product. Funds can better negotiate the valuations here, based on Tech DD outcome.
  • Aggregator Platforms: Such platforms are naturally exposed to way too many 3rd party systems to send / receive data. Here data sharing, data protection and data ownership are the critical areas to be checked in Tech DD so DD is must for such platforms.

These are the industries we feel where tech DD can’t be optional. This is based on our past experiences. Share with us your views on this.

What all industries do you invest in? Do you perform Tech DD before investing?