Due Diligence Software

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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Reply by an intermediary
from Babson College in Boston, MA, USA

I am an M&A advisor, have performed diligence on 100s of businesses. The problem you will encounter is how can you ensure seller participation? They have to be willing to provide direct access to their ERP and bank. I would guess there would be a very low participation rate for this.

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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