You have developed a spectacular product. You have a good idea of the value of your company. You’ve worked hard to attract four potential buyers. And now the day has come.
Your first day of due diligence. Meeting with your first potential buyer (the deal you really want!). Are you ready? How will you answer the technical questions that come up? Specifics about engineering, product development history, pre-clinical testing methodology choices, and materials sourcing? Who on your team do you trust to answer the pointed questions that are sure to be asked?
So, what is your game plan for your start-up? Whether your end goal is Series B funding or acquisition, it’s never too early to start thinking about due diligence. The right R&D partner not only creates a product worthy of an investor’s notice, but is capable of representing that product with authority during the due diligence process.
Nothing kills a deal quicker than a CEO or marketing executive reading PowerPoint notes about intricate engineering they don’t really understand. Potential funders or acquirers will want to ask detailed questions about the history of the project from an engineering standpoint, and an experienced R&D partner is an invaluable asset.
As you get close to a funding or acquisition deal, you’ll have lots of stakeholders on the acquirer’s side – legal, marketing, sales, engineering, quality control – each of them with a say in the overall “buy or pass” decision. Every one of these stakeholders will take a look at your company from their perspective and lay out all the strengths – and weaknesses – they see in your product and team. Usually at least one person on the due diligence team is the “spoiler,” charged with poking as many holes as possible in the start-up’s product narrative.
When you understand the needs of each stakeholder, you can head off a lot of the objections a good due diligence team will raise. What you need is an R&D partner who will look at your product from an investor’s standpoint and play devil’s advocate throughout the development process. Think of it as having a mock debate partner, someone who will think of the objections acquirers might raise so you can hone the answers to those objections.
Remember, a key factor for acquirers and funders is mitigating risk. While every product has its weaknesses, you want to minimize them during development and have an R&D partner who can speak to them coherently during due diligence. Otherwise, a savvy acquirer will use any perceived weakness as a potential risk and a way to devalue your company.
By the same token, you want to highlight your product’s strengths, and an experienced R&D team will know exactly what aspects of your product are most important to a potential acquirer. Often the most attractive parts of your product aren’t obvious in the written reports and need to be brought forward in a live presentation.
Continuity of team is also important to an acquirer or investor. From an acquirer’s standpoint, while a purchase often includes the start-up’s key team members, it’s understood that their time may be limited, as other opportunities come up. When you outsource all of R&D to a third party, the acquirer knows that the necessary engineering talent will still be available, long after the original start-up team has moved on. Similarly the investor wants to see continuity in the development team, and with an outsourced R&D firm, the investor knows that the team will be there for the long haul.
An acquirer or funder is also looking for thoroughness and a long-range plan. If an angel investor is interested in funding your Series B, for example, you need to clearly articulate your commercialization plans. An acquirer will also want to know that you have thought through the practical aspects of bringing your product to market.
At REV.1 Engineering, we’ve sat on both sides of the due diligence table, so we are uniquely qualified to look at your product from an investor’s standpoint. We start thinking about fundability as soon as we start on your project, and we’ve represented the role of VP of R&D for our clients at dozens of due diligence meetings with potential acquirers and investors. During development, you can count on us to speak up if we think a strategy change will better serve your end goal of funding or acquisition.
If you’re a start-up with the goal of funding or acquisition, we offer the expertise you need for your medical device development and due diligence process. Let’s get your device moving … 2x Faster than if you tried to build an in-house team. Give us a call at 951.696.3933, connect with us on LinkedIn, or send us an email at firstname.lastname@example.org, and let’s get your start-up funded or acquired.
Eric & Phil