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Rob Green

How to effectively assess a B2B tech company

Updated: Feb 16, 2020

8 things to understand & manage well before due diligence begins. Drive to increased valuation downstream.


Due diligence in business transactions is akin to buying a house. You can walk around it 5x times, go inside and tour it, but until you live in it you don’t really know how it’s going to function. Identifying gaps in the team, engineering, product and sales often aren’t part of the diligence process and frequently don’t come to light until well after a deal has been completed.



Professional investors, venture capture, private equity firms, and investment banks have an established system for doing due diligence. This is a form of an audit that is geared around ensuring that the material information provided by a company facing an investment or acquisition is correct and true. Contracts, the cap table, reported revenues, etc. all have to be accurate.


What due diligence doesn’t tell you, however, is how that company is going to perform once an investment or acquisition is completed. WorksMachine can help with all or part of what's needed well beforehand any transaction.


We've developed a complementary upstream assessment process to de-risk this issue. Our process is geared around how the company functions and how it is structured. We know from our own team’s experience: how long it takes to develop a product; how long it takes to move it into a market; how much money it will cost; where there will be inefficiencies; and where product dates and allocated dollars will slip.


An assessment should occur well before due diligence starts, sometimes months before, and ultimately provides the investor with insight about how the company will function after their investment. It also preps our team for further analysis, and a game plan to fix and accelerate the company getting it ready for a transaction downstream.


The assessment and potential follow-on engagement will reduce risk and position the company leading into and after the acquisition or cash infusion.



What we look for once we're inside a company.


At WorksMachine, our assessment process initially looks at the team, sales, engineering and financials.


We break it down into these Top 8 steps (all are important, so they aren’t in any order):


  1. Understand the company’s goals and get a sense of the culture.

  2. Meet the exec team.

  3. Get a handle on the numbers.

  4. Delve into the category and the problem.

  5. Understand the product direction and roadmap.

  6. Learn about the technical strategy and engineering team capability and capacity.

  7. Review the ecosystem plan.

  8. Gain insight into the company’s growth strategy.


1. Understand the company’s goals and get a sense of the culture.


We start by learning about the vision for the company and the founding insight that lead to the company's inception. We get a sense for the goals and the company culture, and how it relates to the category they are battling to win.


Then we get a sense of the top challenges the exec team is facing; we learn about what has gone right so far, and what has gone wrong.


Has the company pivoted? If so, why? What are they doing now and what is different?


2. Meet the exec team.


Team is everything. We try to understand as much as we can about the founders, what their roles are today, and their insights into why the company was started. Often the exec team has evolved and the founders may no longer have operational roles, so it’s important to understand the roles and responsibilities of the current core team.


We also try and get a sense of individual strengths and weaknesses of each exec team member, as that often later explains many things downstream when we get into our analysis and find blockers or challenges.


If the company has taken external funding, we learn about the Board of Directors, any advisors, and the roles that they all have today and what value that they all each provide. In addition, we look at the company’s organizational structure and get insight into what risks may be present in the current team, and how they may be offset with current hiring plans to round out the team.



Exec team
Meet the exec team.


3. Get a handle on the numbers.


First we look at the runway, as that helps us define our timeline as months, quarters or years. Then we get in sync on which metrics are tracked, and if we are on track or not to meet them.


We dig into the financial statements, including pro forma projections for the next 24-36 months and how the company is doing against how the overall market is growing.


Maybe the company is completely bootstrapped via organic growth, or it has taken in funding to accelerate growth. In either case, we’d like to know the shape of the cap table: How many rows? How many columns? How long have investors been invested and when do they expect to exit? What is the equity position of the founders, the current exec team and how does the company equity structure look like for future investors.


Is there any cohesive plan for the next financial milestone, whether that’s an investment from a strategic partner or an institutional investor? Or maybe the company looking to exit with the help of an investment banker or private equity.


4. Delve into the category and the category problem.


Before we look at the product and its capabilities, we like to understand the problem the company is solving. What exactly is the category and how big is it? Are they solving a new problem, or an old problem in a new way?


Hopefully the company isn't one of many players in a now crowded market, as generally the top winners take all in today's rapid growth markets.


Is the overall market declining, staying flat or growing at 5%, 20% 40% CAGR or more; and is the company behind, tracking or ahead of this industry? Or is this really a new $0B category ripe for the taking?


We look at who are the market leaders, the analysts that follow the space, and if there is still an opportunity to carve out a new category to drive new rapid growth.



Understand the product roadmap
Understand the product roadmap.


5. Understand the product direction and roadmap.

At this point we are ready to understand more about the product. We focus on the existing market definition, looking at which industries the company sells into, who their customers are, and the various personas that they are trying to address.


How many competitors are there? We like to know who they are they and how they are tracked. We also like to learn how competitors today reach their customers, including via distribution channel partners.


With our deep engineering leadership expertise, our team reviews the existing product roadmap, and how this maps to the defined customer problems over the next few quarters and years. What are big gaps that have been identified, and what are the plans to address them?


Exactly what is the unique value proposition and how does the solution address the problems they are attacking? We use SWOT analysis and other techniques to develop our own perspective, to determine most importantly do the product capabilities represent something really differentiated in a growing or new market, or something has been.


6. Learn about the technical strategy and the engineering team capability and capacity.


We quickly delve into the current product architecture, understand the systems used, as well as look at which 3rd party technologies are the products or services based on. Is the company building their own technology stacks or leveraging others? Are they licensing in technologies from other companies?


Are they building on the latest technologies or platforms, or on those that have since been superseded by something better?


Understanding the development process, what specifications are available for review and the platforms currently delivered to are critical.


Also critical is the depth and experience of the engineering team, and where the gaps lie, as the personnel gaps need to be filled in order to deliver on the roadmap. Is there enough funding to grow the team and fill in the gaps? What recruiting is underway to fill the gaps?


Next we look at how differentiated the technology is. Are there patents pending or issued? Is there solid IPR to potentially license out this to accelerate growth, or help fuel a better valuation down the road?


7. Review the ecosystem plan.


We assess how the company scales today via partners and what business development efforts or programs are in place to reach beyond our core strategic partners to drive partner breadth.


Are they able to leverage other existing growing third-party ecosystems or do they need to build their own?


It’s also important to understand how customers find the products and how the products are delivered to end-users. We look for key product integration partners and create early hypotheses about which may become strategic investors or acquirers.


8. Gain insight into the growth strategy.


There are a few key things we immediately look for: namely the growth strategy and the metrics/KPIs which track the strategy.


We look through existing analyses to learn how revenue is distributed across current channel partners and across customers in each targeted industry or segment.


Finally we track how the company finds new customers, upsells existing ones, and how the sales funnel is scaled via marketing to meet the goals and KPIs.


Next Steps: What happens after the assessment.


After our relatively quick but comprehensive assessment process, we scope out a game plan on how we can help analyze, fix and accelerate a company toward a financial growth, investment or acquisition milestone. We can help with a wide range of options and strategies.


Our engagement and process can last many months leading up to the ultimate financial milestone, with the ultimate goal of optimizing the valuation for maximum value before the transaction process kicks in.

Contact WorksMachine to learn more.





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