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© The Z/Yen Group of Companies 2008
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Investors use due diligence to help them understand the
relative risks and rewards inherent in potential investments. Where the
potential investment is in technology businesses or technology dependent
businesses, traditional, finance-based due diligence alone rarely provides
sufficient evidence and assurance, even for investors with strong stomachs. Many
investors do not feel comfortable with technological issues, most technologists
have little or no experience in finance and business management, and many
financial advisors do not understand technology. The result all too often is
poor risk assessment, high "hurdle" rates of return on technology
ventures, and good ideas either not being supported or being poorly developed. As the leading risk/reward professional practice, Z/Yen offers technological due
diligence for potential investors in technology based ventures.
Meaningful technological due diligence requires soft analysis
and judgement as well as hard, objective assessment. Z/Yen employs a mixture of
numeric and qualitative techniques in our proprietary risk/reward methodology,
such as:
-
risk analysis of the new product development process of a leading computer
games developer, using ‘Delphi’ methods, including expert panels;
-
calculating the costs of capital and desired rates of return in a volatile
sector of the European chemical industry, using stochastic modelling of
multivariate outcomes;
-
project managing a new commercial service in dynamic design, using ‘checkpoint-staging’
methods of planning for risk reduction;
-
evaluating a technology-based commercial concept for a major City of
London financial exchange, using algorithmic modelling of trading to assess
market risk and mixing qualitative analysis of risk areas with quantitative
credit and ratings data risk.
Z/Yen people bring a variety of technical, academic and
business experience with qualifications in science, information technology, law,
economics and accountancy. Z/Yen has access to specialists upon whom we draw on
an ad hoc basis. For example, we have recently drawn on scientists from the
defence industry, academics from City University, wireless security experts and researchers from St
Bartholomew’s Medical School.
At Z/Yen, we believe that technology commercialisation is a
management process like any other. There are generic issues to manage,
irrespective of the actual technology under study. These issues can be analysed,
and the relative risks and rewards of the prospective investments can be
assessed and compared with previous experience, both qualitatively and
quantitatively. Some of the key benefits can include:
-
turning technical capabilities into attractive product concepts;
-
proof of concepts and rejecting duds (avoiding poor investments);
-
improving success rates and likely financial outcomes (committing to good
investments and improving marginal investments);
-
understanding the appropriate capital requirements for investments (in a
recent case we showed that the client could achieve its aims with a much
lower capital base than it thought).
Z/Yen’s risk/reward methodology enables us to supplement financial due
diligence with analysis of science, markets and technology, straddling and
helping to explain both of these uncertain worlds. Technology investments tend
to offer high risk with potentially high rewards; Z/Yen’s work does not
eliminate the risk but helps our clients to understand the potential risks and
rewards and to increase their success rates. |
