Question 1

1. Activities

Accepted Answer

Diligence & Optimization Planning:

1. Technology Diligence & Optimization Plan:

Technology: Tech stack.  Engineering team skills and cost.  Technical debt that is quantified.  Assessment of unquantified technical debt.  Gap analysis to determine whether technology supports the commercial strategy being developed in parallel.  Analysis of which parts of the technology should be replaced, or shut down, to improve OPEX.

Product: Product roadmap.  Customer interviews about product.  Customer interviews about product roadmap.  Gap analysis to determine where the Product supports the commercial strategy being developed.  Gap analysis to determine where the Product sits in the market (we want to be buying mission-critical products that are best-in-class in this region (ANZ) or 2nd best with the ability to become best).

Cyber-security: crucial to minimizing your risk is an assessment of the target company's cyber-preparedness.  We will do a review of security posture, and produce a list of suggested remediations if necessary.

2. Commercial Diligence (GTM, S&M, pricing) and Optimization Plan:

Existing customers:  interviews with 5 randomly selected current customers to understanding their view on - 1) product criticality; 2) current pricing; 3) current functionality; 4) propensity to renew; 5) propensity to spend more (either because of price increases, or additional functionality modules being released)

💡 Pro tip: Get in touch using the form below to learn about how we avoid pitfalls in these interviews and really find gold.

Pipeline customers: will conduct phone interviews with 5 randomly selected opportunities from the sales pipeline.  Take the pipeline report and pick 5 big opportunities randomly.  Then get the Vendor to make introductions.

💡 Pro tip: Get in touch using the form below to learn about how we avoid pitfalls in these interviews and really find gold.

Industry experts & analysts: We will identify, approach, and interview 5 industry experts.  This will usually include: former executives who have left the Target Company (the inside view); executives that used to work for competitors of the Target Company (the competitive view); Gartner or Forrester Analysts for this category (the industry view); trade press (industry view #2).

3. People Diligence (Management team and teams beneath them) & Optimization plan:

Current team assessment: Who are they?  What are their core skills?

Functional skillset review: 1-on-1 interviews with all key functional areas, whether the current owners consider them as “key people” or not.  The functional heads of 1) Sales; 2) Marketing; 3) Customer Support; 4) R&D; 5) Product (if a separate function); 6) Infrastructure; 7) Security; 8) accounting & finance; 9) HR & culture.

💡 Pro tip: often the vendor/founder/owners will say that many of those functions sits with some of the founders/owners.  Or that “there isn’t a head of product”.  Or that the person that does that is junior.  It doesn’t matter.  We are going to interview the people that actually do the work described in 1 → 9, no matter their title or seniority.  In all software companies, someone is doing those 9 things, even if its not in their title.

4. Valuation:
We review public & private company comps.
We conduct analyst phone interviews.
We conduct investment bank phone interviews.  Talking to friendly investment bankers is a great way to get a sense of fair market value.  We ask: “What would you pay for company X and why?”.  “What could you sell it for in 5 years if it kept growing at XX% and nothing else changed?”.  And lastly “If we changed ABC, such that EBITDA margin was approaching 40%, what could you sell it for now and in 5 years?”.

Question 2

2. Results & Outputs:

Accepted Answer

💡Key Results & Outputs From Phase 2:

Detailed Tech DD report & plan: A detailed analysis of existing tech, with a focus on technical debt, and how the current tech supports the commercial strategy Constellation is developing in Commercial Diligence & Strategic Planning.

OPEX improvement plan: part of the tech DD will focus on elements of the R&D team that could be moved to lower cost locations with minimal risk or disruption.

Commercial DD Report & Strategic Overhaul Plan:

Report: Detailed report on current GTM strategy, and how its working.  Analysis of current customer’s satisfaction based on 1-on-1 interviews.

S&M Optimization Strategy: detailed plan on which of the levers below can be applied to the company; where are the risks; what can we do to mitigate them?  Likelihood of putting each lever to work effectively?

Management & team Diligence Overhaul Plan:

Team assessment: Usually some or all of the founders/vendors will be stepping out of the business.  The diligence will focus on: a) what the company loses when they leave; b) what the bench strength is & opportunity to promote from within; c) what critical skills are missing from the management team;

Hiring plan: A hiring plan will be attached to the diligence report, laying out the new roles needed, and the likely cost and timing of those hires.

PHASES

Diligence, Design and Do the Deal (4xD)

1. Activities

2. Results & Outputs:

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