Client: SHS Ventures Steel GmbH

With SHS Ventures Steel GmbH, a joint venture of VSE AG and SHS – Stahl-Holding-Saar GmbH, the SHS Group pursues the goal of further development as a technologically leading company and extending the value chain through new business areas within the group.

SHS – Stahl-Holding-Saar – is an operational management holding company that, as a shareholder of the two steel companies AG der Dillinger Hüttenwerke (Dillinger) and Saarstahl AG, takes on central staff functions for both corporate groups. Both steel companies, which are among the largest employers in Saarland and employ about 14,000 workers, have been long-established in the market and are world leaders in their respective industry segments.

“Through our collaboration with digatus, we gain comprehensive insight into the technology structures of potential investments before conducting our investments. This has become an essential part of the due diligence process to properly assess the start-up and make a fact-based decision.”

Andreas Herzig – Managing Director, SHS Ventures Steel GmbH

Initial Situation and Challenge

As a corporate venture capital company, SHS Ventures invests across Europe in young, mostly technology-oriented companies, with a connection to current and future business areas of the Saarland-based SHS Group. The investments are used to test their market viability. In this process, the start-ups under consideration can either be identified based on strategic activities in the operational units (complementary products and services) or through a separate scouting process. In the latter, companies are identified in the market, and if there is mutual interest in participation, a classic due diligence process is conducted.

In addition to the financial aspects of the investment or transaction, SHS Ventures is particularly concerned with whether the business model of the often very young companies in the market is sustainable in the long term and whether the product or solution can meet the requirements and expectations in terms of growth and scalability.

IT or technology plays a decisive role here, as the vast majority of investments are in the area of digital solutions (software products, software and services, etc.), and their contribution to company performance on the way to the target result needs to be evaluated and critically questioned. At this point, SHS Ventures relies on the services of digatus, which advises on the process with a combination of due diligence, technology, and market understanding.

Solution

The primary challenge of due diligence is to ensure that the technology services of the start-ups deliver what the founders promise in their pitch, both in terms of content and structure. For this purpose, digatus works with a clearly structured hands-on process. This covers the important aspects with a standardized approach. At the same time, the situation of the audited companies is taken into account (e.g., young founding team, few processes and structures, etc.):

Review and evaluation of the data room documents:
If available, the information provided in the data room is reviewed in advance and an initial picture of the company is created. Both information and statements on historical data (previous development plans, project processes, patents and licenses) as well as future-oriented topics (scalability, technology stack, development backlog, etc.) play a decisive role. Especially for software products, it is important to assess and analyze risks in the form of GPL licenses and similar, and the company’s previous handling of them.

Submission of a Questionnaire:
After receiving the initial overview from the data room, the start-up is provided with a questionnaire. This takes into account the specific characteristics of the company and its field of business, focusing on the technological aspects and related dependencies.

On-Site Workshops:
Once the questionnaire is answered, an on-site workshop is held with the company, particularly involving technology-relevant personnel (CTO, Head of Development, software developers in general, etc.). Any remaining uncertainties from the questionnaire are discussed and analyzed. Subsequently, the technology is examined in detail through code reviews, individual interviews with relevant persons, product demonstrations, sprint reviews, or similar activities.

Business Plan Review:
After collecting all previous information, it is then compared with the business plan submitted as part of the due diligence, and any impacts of the previous detailed work are evaluated.

Following the completed activities, an audit report is prepared that evaluates all identified issues and highlights potential risks. This risk assessment also includes possible countermeasures and impacts on the business plan. Typical pitfalls can be knowledge monopolies of individual employees. A team may also need additional support to realistically achieve its goals (development capacities or know-how). There may be risk factors in the technological implementation or architectural decisions that could potentially hinder future growth without prior countermeasures. Sometimes, certain processes are also missing to ensure stable operations. Through experience in technology and software development, digatus provides valuable insights in these situations, also keeping in mind the respective operating environments as well as availability and scalability.

Customer Benefits

For SHS Ventures, a comprehensive technology audit of target companies can significantly reduce the potential risks of investment regarding technological stability, scalability, operational processes, and know-how. Where necessary, roadmaps and improvement concepts can be developed together with the founders of the start-ups to improve and potentially stabilize the company’s performance, as well as ensure that the technology contributes its expected share to increasing the value of the investment.