With Start-Up India pouncing ahead, there are are several Start-Ups which start mostly by some young job doers and as they want to grow, they need funds.
Most of them are genuine but we need to weed out the Fly by operators and also cross check whether are they worth of the investment.
The document below explains a due diligence done for a fantasy Gaming start-up. The names have been changed for confidentiality, but it do covers the essence .
I always follow the template used below.
Due Diligence doc for Fantasy Gaming Start-up
This document is supposed to do the due diligence for the Investment to be made in the XYZ Sports Private Limited Team.
XYZ Sports Private Limited operates two primary products:
1. ABC.in – a website tracking the latest developments, news, features and lot more in the realm of Sports.
2. IJKFantacy – a fantasy sports app, which allows users to enjoy the thrill of sports and make their predictions on outcomes.
Both these products have been ideated, designed and implemented by the Tech Team of XYZ Sports. XYZ Sports own the entire code-base, and the intellectual rights associated with it, with no dependencies on any external or outsourced entity.
The areas, which will be covered are as following:
- Technology and Development Process
- Current Business Status
- Identify/Recommend Opportunities
- Product Quality / Tear-down
- QA Process is not well defined. They seem to be getting very less bugs in their Release Cycles, which is good but if the Internal QA process is not fine then that means that there is still 25%-30% efforts left out in running a professional QA cycle.
- Their Scaling Cost for hitting the target of min 6 lakh users concurrent online is too high based on 1250/server. They have to reevaluate and come with proper number or there is some issue with the way, they are using node.js as server.
- Graphics need to be a bit more sophisticated, there is roughly 2-3 months of Graphics Refinement efforts along with fixing UI bugs
- Gaming App should be capable of Rough Handling. The app needs a Refinement cycle for being able to take Rough Handling. e.g. if you try to drag card roughly and in haphazard way, the application doesn’t respond well.
- They have to build Hybrid or IOS Apps. So this will again require efforts.
- All the above points imply that they have 6-8 months of Finishing, Quality & Scaling work before they can be aggressive on the business side or do something new.
- The way they use customer or usage data to build a better product needs more focus in the coming cycles.
- The data they store about customers & Personalization needs more refinement.
- Roadmap / Backlog review
- Focus on what is in flight – future priorities will likely change
research – either conducted by the target company, or you can pay for
quick turnaround research:
- Customer interviews: satisfaction, gaps, competitors under consideration
- Exit interviews for customers who recently switched away
- SEO (search
engine optimization) & ASO (app store optimization) strength. Use
third party tools such as Spyfu and Sensor Tower
- URL structure
- Inbound links
- Competitor analysis
- App store reviews
- BBB / Trustpilot
- Request top reasons for customer contacts / customer service escalations
- Any concerns about fraud (either current problems with fraud transactions, or lack of ability to detect/mitigate)?
- Does the product utilize third party content or services, and is it properly licensed?
- Walk through
back-office tools (How manual are processes? Will processes scale?)
- Admin tools, customer service agent tools, etc.
Technology and Development Process
redundancy, downtime. Do they have:
- Failover options
- Single points of failure
- Disaster recovery plan for continuity (lights stay on) and/or data recovery if there was a major problem with servers or data center
– what would have to change to support 100x (or 1000x) more users?
- How easy is the product/service to localize?
- What manual processes exist that will need to be automated?
- Development process & speed: source/version control, builds, deployment, monitoring, notifications, bug tracking, etc.
- Versions: how updated is the tech/stack
- Test coverage
- Performance (site/app speed) globally
- Tech debt
including bug debt
- How much would it cost to update legacy tech, or tech that won’t scale?
- How long to resolve bugs?
- Privacy, PCI
- What personally identifiable data is being collected, and how securely is it stored?
- Value of patents, unique trade secrets
- Ownership /
independence of technology used
- Use of and/or contribution to open source that could be problematic (some open source licenses are more prescriptive than others)
- Use of third party licensed technology or content that may be problematic
- Confirm existence of nondisclosure and ideally non-compete agreements with key technology team
- Code review:
- How much of team time/effort is “lights on” or maintenance?
- Network, systems diagram
- Process for documentation and/or release history
- Productivity – release history over the past 6 months
- Tenure / loyalty
- LinkedIn profiles – similar quality bar for acquiring company employees?
- Job postings
- Org chart
- Vendors v. full-time
- Who are the most critical people to retain?
- Flag any recent reductions in team size, pay freeze, or cancelling other spend that may not be sustainable
- Flag any unsustainably good deals that won’t get inherited post acquisition, e.g. particularly low costs for a supplier/partner/channel and/or particularly high rev share or terms from a customer or partner.
- Suppliers – stability, interview for concerns
- A/B testing?
- How customer feedback is collected – who sees it?
Current Business Status
- New customer acquisitions, cancellations
- Share by geography and major customer segment
- Profit (particular focus on gross profit)
- Traffic by source
- Return on Advertising Spend (this would likely change post acquisition)
- New v. repeat customer traffic
- App downloads (e.g., AppAnnie)
- Google Trends for search volumes, AdWords
- Engagement and retention
- Cut costs
- Eliminating redundancies
- Use combined larger scale to lower supplier/partner/distribution/marketing costs
- Addition of content, customers, features, etc.
target / acquired company
- Shared customers
- Use of more sophisticated process or tech
- Global expansion