Due Diligence Software

professional profile

December 09, 2023

by a professional from University of California, Berkeley in New York, NY, USA

Hey everyone, I’m Alex, an ex-Amazon software engineer! My co-founder (ex-PE investor) & I are considering building software that would allow acquirers (e.g. search funds) to streamline the vetting process for potential targets.
Our software will connect to a company's bank accounts, accounting software (quickbooks), POS systems (square, toast), ERP (NetSuite), and e-commerce tools (Shopify) to generate financials & a valuation report almost instantly.
We think this would help searchers sift through targets and close deals quicker.
Are we barking up the wrong tree? Would love to hear if people are already trying to automate their investment processes and other thoughts!

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commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
From a lenders perspective, I first agree with Marc above. It is very hard to get sellers to provide information directly and often they want to control what is provided. I think getting sellers to provide direct access, even with guardrails, will be hard. Most business owners tend to be very private and want to tightly control the information on their companies.

The second issue you are going to have is automating analysis is that the underwriting and analysis can vary significantly depending on the type and size of the companies you are looking at. It would be hard to have a system explain what a good deal is and not a good deal. And most buyers and still going to want to do their own due diligence and hire their own team to do it as well.

I am not saying it cannot be done. I have seen other solutions from software I did not anticipate. But I do think it would be a challenge and take a lot of work and salesmanship to get going. I do not know if the end market that would use it is big enough. Just my opinion though. Good luck.
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Reply by a searcher
from Southwestern University in Houston, TX, USA
I would love to see it work. Once you get past the "creepy factor" mentioned above of connecting directly to their software, part of the challenge is that no two small businesses do their books the same way. If you use true GAAP as your basis for understanding, you'll end up spending forever clearing up inconsistencies.

The second factor, of course, is risk to you. Are you going to certify your findings (which legally puts you on the hook for any problems down the road)? If so, your price just went up significantly.

I would love to see this work, but there are significant reasons why it hasn't already (the tech isn't that complex).
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