How to Diligence the Risks of SaaS Scope Creep
GRAPH has diligenced many SaaS companies, and as we all witness there is a particular trend towards software companies seeking to build a “complete platform” stemming from an original best-in-breed point solution. In the quest to grow revenues, increase stickiness, drive value, and attract investment, companies are expanding their feature-sets. This scope-creep poses a very real risk of…
Commercial Due Diligence Tips When Forecasting Technology Adoption
Many recent PE deals have targeted businesses that apply technology to help customers streamline processes which have previously been manual and “paper-based.”
Discovering Repeatable Growth in your Diligence
Over the years, I have heard multiple M&A professionals say “we don’t underwrite hopes and dreams,” by which they mean new tactics proposed, but not tested, by Management (and their bankers). What is not discussed as often are the new tactics that have been tested…but that are destined to work just once. These tactics are what we call unrepeatable growth stimulants, UGS (or just,…
Commercial Due Diligence and Value Generation via Network Effects
Many attractive investments are predicated on network effects – these are businesses that connect users, buyers, and/or suppliers. Companies like Visa, eBay, and LinkedIn have famously enjoyed the benefits of network effects to accrue immense, highly durable value. Outside of software, businesses such as recruiting, retailing, media, health provider networks, and many others, enjoy network…
In virtually every CIM and VDD doc that I read recently (for B2B business, at least), an early page highlights a set of corporate logos of the target company’s key customers. Logos for large, well-known businesses are great; logos for significant and “cool” customers – those that are recognized as movers and shakers – are expressed boldly to help create “lift.”
Indefensible (Competitive Position)
I’m fairly certain that just about every commercial diligence assignment conducted is going to include measurement of the asset's commercial strength relative to customer needs and expectations, and relative to perceptions of competitors and alternatives.
Available Market Size
Why Large Markets Can Sometimes Feel Very Small (and why Addressable Market is insufficient) We’ve written before about the need to clearly define markets to inform accurate sizing. But even with the clearest possible definition, one other piece of analysis is critical, and is often overlooked – quantifying what we like to call the Available Market Size.
Problems to Avoid when Forecasting Product, Service, and Technology Adoption as Part of Diligence
An investment thesis often depends on adoption in one form or another (e.g., of a new product, business model, technology, etc.) so we thought it helpful to lay out “best and worst” practices for assessing adoption potential.