One of the most crucial processes in a startup is the Due Diligence. Leaving a good impression is key to investors’ money. Tech people, especially young CTOs, are often dramatically unprepared when it comes to a tech due diligence. On the other hand, with a bit of preparation a Due Diligence (DD) shouldn't be a reason for sleepless nights. I have been on both sides of the game, as CTO as well as reviewer. In this workshop I want to share my experience of dozens of DD's: - What is important in a Tech and Product DD ? - What will investors expect from you? - Dos and don’ts - What does it need to be well-prepared? - How to discuss (and sell) your skeletons in the closet? The workshop consists of two main parts: In the first part, I will talk about my personal experience on both sides of the table The second part will be a Q&A session * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * NOTE: You'd love to see me talk about this at your conference or company? Feel free to send me an email. There were handouts coming with the talk: list of DD docs, my DD approach, red flags, useful links. If you want to have these handouts, send me an email. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

1. Tech Due Diligence
from a CTO’s perspective
- The Workshop
Chris Philipps
cphilipps@me.com
powered by

2. Chris Philipps
• Tech Advisor for Startups and
VCs
• Interim CTO since 2010
• Agile Enthusiast since 2008
• Tech since 2000

3. Chris Philipps
• Tech Due Diligence since 2010
• Roles:
• “CTO under DD”
• Reviewer
• Sparring partner for CEOs &
CTOs (Test runs / DD
support)
• Performed dozens of DDs
from 100k seed/angel up to
40M Series C round

4. What about you?

5. How it all began
(or: /me in 2010)
• dramatically unprepared
• no clue what’s going on
• we probably got the funding
*despite* me, not because of
me
… and so are many CTOs in 2016

6. AGENDA
• What is a DD - and what isn’t?
• Different stages of funding
• Investors’ expectations
• Chris’ approach
• DD-related documents
• Typical red flags
• Your skeletons in the closet
• (War Stories: The good, the bad and the ugly)
• Q&A

7. What is a DD (and what isn’t)
• A DD is a general health check
• Identification of assets and risks
• Evaluation of
• Leadership
• Team
• Technology
http://www.amusingtime.com/images/09/funny-inspection-of-monkey.jpg

8. A DD is highly collaborative work
• A first test for
• common understanding
• trust
• dealing with conflict
• BONUS: It is the most honest and
thorough feedback you can get
http://www.amusingtime.com/images/09/funny-inspection-of-monkey.jpg

9. It is NOT: *
• hide-and-seek
• us against them
• a show
* at least it shouldn’t be. Well, not entirely.
http://www.amusingtime.com/images/09/funny-joker-monkey-picture.jpg

10. Different stages of funding
http://awsassets.wwfmz.panda.org/img/original/rhinos_1.jpg

11. Different stages of funding
Stage: Seed / Angel
Biz Focus: Build
DD Focus: Potential
Stage: Series A,B,C
Biz Focus: Fast, massive growth
DD Focus: Scalability, ability to
change quickly
Stage: Series D
Biz Focus: Expansion (e.g. merger)
DD Focus: Maturity
Stage: IPO
?

12. Different stages of funding
Stage: Seed / Angel
Biz Focus: Build
DD Focus: Potential
Stage: Series A,B,C
Biz Focus: Fast, massive growth
DD Focus: Scalability, ability to
change quickly
Stage: Series D
Biz Focus: Expansion (e.g. merger)
DD Focus: Maturity
Stage: IPO
?

13. Investors’ Expectations
• Ability to grow and scale
• Ability to change
• Leadership and team skills
• Risk assessability
https://shechive.files.wordpress.com/2015/12/kittens-doing-very-human-
ish-things-15.jpg?quality=100&strip=info&w=600

14. • No standard for Startup Tech DD’s
(yet)
• Very different approaches
http://www.amusingtime.com/images/09/funny-inspection-of-monkey.jpg

15. Chris’ DD Approach
http://assets.worldwildlife.org/photos/1456/images/story_full_width/
White_Rhino_8.7.2012_Threats_HI_102787.jpg?1345545643

16. Chris’ DD Approach
• It starts with the intro
• It is not only about WHAT but also about HOW
• Big picture and context
• Gut feeling IS a valid indicator!
https://shechive.files.wordpress.com/2015/12/kittens-doing-very-human-
ish-things-15.jpg?quality=100&strip=info&w=600

17. Chris’ DD Approach
Recap: Main questions
• Is the company able to grow / scale?
• Is the CTO (CPO) able to provide great
leadership?
• Is the team motivated and highly
skilled?
• Are they able to (fail and) learn quickly?
• What are main complexity drivers?
• What are major challenges and risks?
https://shechive.files.wordpress.com/2015/12/kittens-doing-very-human-
ish-things-15.jpg?quality=100&strip=info&w=600

18. Review Topics:
• Company view

19. Review Topics:
• Company view
• Product

20. Review Topics:
• Company view
• Product
• Technical leadership

21. Review Topics:
• Company view
• Product
• Technical leadership
• Development process

22. Review Topics:
• Company view
• Product
• Technical leadership
• Development process
• Hosting

23. Review Topics:
• Company view
• Product
• Technical leadership
• Development process
• Hosting
• Deployment

24. Review Topics:
• Company view
• Product
• Technical leadership
• Development process
• Hosting
• Deployment
• Software architecture

25. Review Topics:
• Company view
• Product
• Technical leadership
• Development process
• Hosting
• Deployment
• Software architecture
• Quality Assurance

26. Review Topics:
• Company view
• Product
• Technical leadership
• Development process
• Hosting
• Deployment
• Software architecture
• Quality Assurance
• Stakeholder collaboration

27. Review Topics:
• Company view
• Product
• Technical leadership
• Development process
• Hosting
• Deployment
• Software architecture
• Quality Assurance
• Stakeholder collaboration
• Company culture and tech ecosystem

28. Optional Topics:
• Data Analysis / Business Intelligence
• Data Science / Machine Learning
• R & D
• Compliance: Data security, Privacy, etc.
• Internal IT
• Hiring
• …

29. Involved People:
CEO / founder(s)
CTO
Head of Engineering
CPO
Head of Product
Product Owner(s)
Scrum Master(s)
Agile Coach
Project Manager(s)
Mobile Engineers
Software Engineer(s)
Operations Engineer
DevOps
QA
Test Engineer(s)
Security Engineer
Data / BI team
Selected stakeholders such as Customer Support, Marketing, Sales
Internal IT
DataScientist(s)

30. Involved People:
CEO / founder(s)
CTO
Head of Engineering
CPO
Head of Product
Product Owner(s)
Scrum Master(s)
Agile Coach
Project Manager(s)
Mobile Engineers
Software Engineer(s)
Operations Engineer
DevOps
QA
Test Engineer(s)
Security Engineer
Data / BI team
Selected stakeholders such as Customer Support, Marketing, Sales
Internal IT
DataScientist(s)
https://cdn.meme.am/instances/53541325.jpg

31. Prepare your Team
• Give them context
• State importance of DD
• Eliminate fear
• Give clear guidelines regarding
disclosure of information
• “Challenges instead of problems”

32. Review Format:
• 1:1 Interviews
• Group Interviews (e.g. dev teams)
• Standup or Planning Meetings
• Whteboard discussions (e.g. architecture)
• Documentation Review
• Code Walks / Code Samples
• Live samples (e.g. from CI or monitoring tools)
• Actual usage of the product

33. Examples of Questions
• What are your principal concerns with respect to the business? What
keeps you awake at night?
• Describe your software architecture incl. 3rd party components,
technology stack, communication protocols
• What is the highest risk in your tech landscape and how do you plan to
tackle it?
• Which changes would you apply to your current architecture if you had
to scale from n (unique visitors / transactions / requests / …) to 2*n / 5 *
n / 20 * n?
• Can you explain the reasoning behind the choice of XY? Why didn’t you
[make / buy] it?
• Can you describe your role and responsibilities as CTO?

34. DD Documents
• See “Checklist DD Docs” - Exercise
http://www.pd4pic.com/images/collared-peccary-pig-gray-sleeping-sleep-animal.jpg

35. Typical Red Flags / Antipatterns
• Lack of transparency and collaboration
on the DD
• Lack of tech strategy
• Not knowing the business perspective
• Lack of delegation
• Not-invented-here (NIH) syndrome
• Focus on problems rather than solutions
• Underestimates hiring talent
https://media.licdn.com/mpr/mpr/AAEAAQAAAAAAAAe-AAAAJDIyOGU4MGE2LWNmMmItNGYxMS04ZWRjLTUxMDIzMjExODQ3ZA.jpg

36. Typical Red Flags / Antipatterns
Leadership (covered)
Technology
Product
Data
Process
=> Your turn!
https://media.licdn.com/mpr/mpr/AAEAAQAAAAAAAAe-AAAAJDIyOGU4MGE2LWNmMmItNGYxMS04ZWRjLTUxMDIzMjExODQ3ZA.jpg

37. Your Skeletons in the Closet
http://www.berliner-zeitung.de/image/
1236966/2x1/940/470/991b35395e50d9775ce05607dd228984/vZ/
verrueckte-jobs-berufe-arbeit-arbeiten-ausgefallene-schraege-skurrile-
ungewoehnliche--.jpg

38. Your Skeletons in the Closet
• Relax: EVERYONE has them!
• Adress them proactively
• Provide a plan how to tackle
them (problem awareness
and problem solving skills
are way more important than
problems)

39. [ The Good, the Bad and the Ugly]
http://www.gablescinema.com/media/filmassets/slides/
The_Good_the_Bad_and_the_Ugly_1.jpg

40. Q & A

41. Want to collaborate?
=> Looking for collaborators on Startup Tech DD framework / standard
cphilipps@me.com

42. Thanks!
Questions?
cphilipps@me.com
Xing: https://goo.gl/aLH26o
LinkedIn: https://goo.gl/9mCUQX
Twitter: @chphilipps