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Technology audits for SHS Ventures

Investing in a new business area beyond one’s own core competencies requires entrepreneurial foresight and also always brings challenges – which competencies will be required, is there an investment strategy (equity vs. buy-and-build investment), how sustainable is the new business model? Our client SHS Ventures, as the strategic venture investment arm of the Saarland-based SHS Group, faces these questions on a daily basis and relies on digatus’ expertise for the evaluation of (IT) technological issues.

Customer: SHS Ventures Steel GmbH

With SHS Ventures Steel GmbH, a joint venture of VSE AG and SHS – Stahl-Holding-Saar GmbH, the goal for the SHS Group is to further develop as a technologically leading company and to extend the value chain through new business areas within the Group.

SHS – Stahl-Holding-Saar – is an operational management holding company which, as shareholder of the two steel companies AG der Dillinger Hüttenwerke (Dillinger) and Saarstahl AG, assumes central management functions for both groups of companies. Both steel companies, which are among the largest employers in the Saarland and employ around 14,000 people, have been established on the market for many years and are global leaders in their respective industry segments.

“By working with digatus, we gain a comprehensive insight into the technology structures of potential investments before making 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 throughout Europe in young, mostly technology-oriented companies related to current and future business areas of the Saarland-based SHS Group. The investments are used to test their marketability. The start-ups in focus can be identified either on the basis of strategic activities in the operating units (complementary products and services) or through a separate scouting process. In the latter, companies are identified on the market and, if there is mutual interest in the investment, a classic due diligence process is carried out.

In addition to the financial aspects of the investment or transaction, SHS Ventures is particularly concerned with whether the business model of the companies, which are often still very new to 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 scaling.

Here, IT or technology in particular plays a decisive role, as the vast majority of the investments are in the area of digital solutions (software products, software and service, etc.) and their contribution to the company’s performance must be evaluated and critically scrutinized on the way to the target result. At this point, SHS Ventures falls back on the services of digatus, which accompanies the process in an advisory capacity 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 also deliver in terms of content and structure what the founders promise in their pitch. For this purpose, digatus works with a clearly structured hands-on process. There, the important aspects are covered with a standardized procedure. At the same time, however, the situation of the audited companies is also taken into account (possibly young founding team, few processes and structures, etc.):

Review and evaluation of the documents of the data room:
If available, the information provided by the data room is reviewed in advance and an initial picture of the company is created. 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 here. Particularly in the case of software products, risks in the form of GPL licenses and the like must be evaluated and analyzed, as well as the company’s previous handling of them.

Transmission of a questionnaire:
After receiving the initial overview from the data room, the start-up is provided with a question catalog. This takes into account the respective specifics of the company as well as the business field and focuses on the technological aspects and dependencies linked to them.

On-site workshops:
Once the questionnaire has been answered, an on-site workshop is held with the company and, in particular, the technology-relevant persons (CTO, Head of Development, software developers in general, etc.). Any outstanding ambiguities in the questionnaire are discussed and analyzed. The technology is then examined in detail in the form of code reviews, individual interviews with relevant people, product demonstrations, sprint reviews or similar activities.

Business Plan Review:
After all previous information has been collected, it is then compared to the business plan presented during due diligence and any impact of previous detailed work is evaluated.

Finally, an audit report is generated on the activities carried out, which evaluates all identified issues and identifies possible risks. This risk assessment also includes possible countermeasures and effects on the business plan. Typical pitfalls can be know-how monopolies of individual employees. A team may also need additional support to realistically achieve its goals (development capacity or know-how). There may be risk factors in the technological implementation or architectural decisions, which may prevent later growth without prior countermeasures. Sometimes, however, certain processes are missing to ensure stable operation. Thanks to its experience in the field of technology and software development, digatus provides valuable advice in these situations, while also keeping an eye on the respective operating environments as well as availability and scalability.

Customer benefits

For SHS Ventures, a comprehensive technology audit of the target companies can significantly reduce the potential risks of the investment in terms of 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 in order to improve and, if necessary, stabilize the company’s performance and, at the same time, to ensure that the technology makes its expected contribution to increasing the value of the investment.

 

 

 

Carl-Friedrich Heintz

Carl-Friedrich Heintz
As a co-founder and partner, he is instrumental in driving our development, especially in the focus areas of M&A activities as well as in the development of our portfolio. He successfully applies his 15 years of experience in the IT environment in customer projects with a focus on M&A IT and Industry 4.0 topics, as well as in the scouting of new technologies and business models.

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