patent, acquisitionSuppose the main value of startup A is a breakthrough technology that no one has figure out yet. It has no revenue, no customers and purely living off VC funding at the moment to keep the research effort going.
Now BigCorp B, who is also attempting to create the same breakthrough technology but hasn’t being able to figure out yet, want to acquire startup A. BigCorp B requested detailed breakdown of how the technology is created from startup A and calling it a standard tech due diligence before writing a check.
From startup A’s point of view, after revealing the detail to BigCorp B, BigCorp B can run away and duplicate the technology with their own engineers. Even though startup A has pending patents for protection, startup A does not have the money like BigCorp B to hire lawyers and play the litigation game.
From BigCorp B’s point of view, it’s natural wanting to make sure what they are really paying for before writing a big fat check.
What is the typical process of tech due diligence for a startup acquisition that protects both the buyer and the startup?
Overall, you shouldn’t be worried about BigCopp B duplicating your technologies. After all, that’s why acquisitions exist - it’s cheaper for a company to acquire a startup that has already built the technology than to copy the recipe and waste time to bring together the right people to build it from scratch.
Point Nine Capital, a Berlin VC, created a tech due diligence framework. Check out their post, there’s also a Tech-Due-Diligence-Calculator:
https://medium.com/point-nine-news/a-technical-due-diligence-framework-for-early-stage-startups-c24d5408256e#.bdclzvpn5
I understand that you product is not a web/mobile app, but the questions might give you and insight about the analogy of your case.
ANY acquisition of one company by another involves a due diligence process, a part of which is the agreement by both firms that neither will make use of anything learned through the due diligence discovery process. There are legal agreements that cover this. The buying company will always (rightfully) want and have the right to make its own determination as to whether the representations made to it by the principals of the company being acquired are true and accurate. This includes being allowed to examine and understand the technology which may be a key part of the reason for making the acquisition in the first place. As an analogy, imagine being told that if you want to buy a house then you have to take the realtor’s word about what the interior is like and what the condition of the property is. Would you buy it? (grin)
It always makes an entrepreneur nervous that they have to let someone see the recipe for the “secret sauce” that makes their business valuable, but it’s an unavoidable part of the process for raising capital from the big players or being acquired by some other firm.
Hope this helps.
Good luck!
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