A Technology Due Diligence (TechDD) consists of a detailed report that compares the key technology of a specific startup with all other competitors in the same sector. It provides an independent and reliable evaluation of the technological value of the startup’s innovation.
The Dealflow.eu programme offers TechDD for selected innovators of the Innovation Radar. This service is developed by consortium partners CRIT Research and Linknovate.
This article includes insights from Giulia Broglia (Innovation and Public Funding Specialist at CRIT Research), Johanna Ronco, (Technology and Innovation Advisor at CRIT Research), and Manuel Noia (CEO of Linknovate).
Benefits of TechDD for innovators
A TechDD can facilitate the path to successful investment. EU-funded projects foster the creation of impressive innovations in many technological sectors, but often, when the project ends, the innovation fails in business development. Furthermore, many EU-funded innovators have no support in increasing the industrial and commercial uptake of their results. Having a TechDD is an essential tool to consider the best way to commercially exploit it.
Advantages of TechDD for investors
A TechDD can be a guarantee for the potential of the technology. In the last years, an increased number of startups have been involved in scams that could have arguably been avoided. An investor should have clear, detailed, and fair tools to evaluate the technological goodness of a startup to avoid misleading overviews. With a TechDD and the insights of traditional financial/business reports, the investor can better understand the overall potential of the startup and better identify the risks connected to the technological scenario. The more you reduce the risk, the safer your bet is.
Advantages of TechDD for the manufacturing sector
Frequently, hardware-focused (HW) startups (i.e., most startups belonging to the manufacturing sector) are evaluated from a business point of view in the same way as software-focused (SW) startups. This is extremely misleading. Most of the time, scaling a hardware innovation is very complex. A trustful value chain must be created and having a minimum viable product doesn’t mean that the manufacturing process is reliable. Thus, HW startups are often perceived as riskier and less competitive than SW ones in investors’ ecosystems. HW startups need larger investments at early stages, and the expected ROI is usually longer. Only 7% of unicorns are hardware startups (source: CB Insight). However, the European industry is mainly based on manufacturing. Therefore, it is important to have many successful HW startups to reinforce innovation in our core industry and the only way to reach this goal is by increasing investors’ technological trustworthiness with trustful technology assessments. Startups with high technological potential are essential for the European innovation ecosystem and TechDD will be a valuable tool to foster their exploitation and market growth.
TechDD vs Financial DD
Normal due diligence, done systematically by venture capital, tackles the surface of the technology and then focuses on (1) financial numbers, (2) the growth of the company, (3) the cost of user acquisition, (4) the state of the unit economics, (5) how is the company going to scale and (5) the capability of handling the scale-up process.
Technology due diligence means going into more detail, not only in what the company can build but also in understanding what other competitors can do. Therefore, it’s not only about the specific company, but also the landscape, and the other players.
It could be argued that technical risk has been traditionally lower than financial risk (no access to funding ecosystems) and market risk (fewer channels to reach a global audience). Now, with the evolution of technology and with the evolution of the go-to-market channels, with the Internet and the democratisation of internationalisation and globalisation of the world, the market risk has been lowered. The financial risk has also been lower: it is cheaper than ever to start a startup. This is why dozens of thousands of start-ups are founded every year all over the world. This translates into technology risk, and technology being more and more important in the game of investment.
The Technology Due Diligence, as thought for INVEST, is composed by two reports:
- Company Tech DD, provided by CRIT, a tool to capture positive and negative signals connected to your technology and its landscape
- Technology Sector Tech, provided by LINKNOVATE, an analysis of the scenario connected to your technology and experts’ insights about the maturity and potential of this technology
CRIT’s approach to TechDD
CRIT has started its activity as a technology broker for big manufacturing companies. Therefore, they focus on identifying the best technology innovation available with the highest potential to be implemented in the real world. CRIT’s TechDD approach mixes the evaluation of start-up capabilities to scale the technology potential reaching TRL9 and the technical benchmarking with competitive solutions. The evaluation starts with a self-assessment questionnaire, used as an icebreaker with the startup. Then, analysts assess the technological potential by collecting and evaluating the information on the startup’s intellectual property, competitors’ solutions and technological landscape. An advantage of the report is that it is simple and easily comprehensible to non-technological experts.
Linknovate’s contribution
While CRIT focuses mainly on analysing and benchmarking the technology developed by the beneficiary, Linknovate’s support consists of the analysis of multiple academic (scientific publications, conference proceedings, grants) and industrial (patents, trademarks, mentions in the news, websites, clinical trials) data sources for technology landscaping. This helps define the startup’s technological expertise/know-how and the correct expertise needed for the niche technology topic.
Following CRIT’s interviews with the startup for their self-assessment, Linknovate proceeds with referential information, which is a critical and unique approach. Linknovate contacts references given by the startup (such as companies perceived as leaders in the sector) and consults experts in the niche topic of the company about the technology, its evolution and maturity. Referential information is key: asking the startup which companies can validate what they say is massively helpful to an investor.
If you are in a due diligence process with your investors and you want help with the technology, get in touch with us to see if you are eligible: https://share.hsforms.com/1KrtC0awJTuegRvdleBqeOg48eua
About CRIT
CRIT is specialised in the research and analysis of technical and scientific information and the development of innovation in research projects. They foster the dialogue among industries on relevant technical and organisational topics by sharing best practices and managing specific benchmarking activities. Moreover, they have vast experience as exploitation managers in Horizon 2020 and Horizon Europe projects.
About Linknovate
Linknovate is a Spain and California based startup dedicated to helping organizations bring AI to their innovation scouting and innovation monitoring activities to enhance their “technology radar”. Linknovate helps them save time and makes it easier to collaborate and communicate internally.
Linknovate supports companies gathering intelligence on strategic topics by detecting x5 more innovation “weak signals” about their competitors, partners, providers and disruptors (startups, spin offs).
Article published by EurA AG.
More about Dealflow.eu
Supported by the European Commission, Dealflow.eu discovers and supports the most promising EU-funded innovators and connects them with relevant investors and corporates. The initiative was launched to help groundbreaking innovations secure the funding needed for their future commercialisation by offering them tailored support and matchmaking services.
To learn more about Dealflow.eu, visit https://dealflow.eu/
Disclaimer: Funded by the European Union. Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union or the Directorate-General for Communications Networks, Content and Technology. Neither the European Union nor the granting authority can be held responsible for them.
