Technical due diligence to raise funds or invest in hardware

By 5 May 2020#hardware
La due diligence technique

The technical due diligence is an essential element when it comes to helping entrepreneurs to set up their project and constitute their minimum industrial strategy to justify their go to market; or investors, investment funds & business angels to qualify a hardware project for investment, whether in seed or C series.

It is an investigation and verification process that identifies, validates and assesses the risks and weaknesses of a project.  It translates the technical elements of the project into figures, from which a capital investment plan is then drawn up according to the project’s stakes.

At Kickmaker, we carry out due diligence assignments for funds that want to invest in hardware projects, or for hardware companies that want to raise funds and/or secure their project, mature it.

The due diligence that we perform is mainly a technical offer that allows us, via a 360-degree study, to validate or build an industrial roadmap that takes into account the risks inherent in the project and to validate a go to market and/or project organization. Kickmaker can then accompany you in the development of the project, of the product itself, by making use of the fine and specialized knowledge acquired on your project during the due diligence.

Here is a non-exhaustive list of the points of vigilance that will be examined during a due diligence process:

Product’s design review

Review and evaluation of the existing product to assess the technical viability of the system, including :

  • product architecture,
  • schematics and blueprints,
  • the 3D design and the existing prototype,
  • hardware components (mechanical and electronic),
  • low-level software.

This will involve analysing systems, subsystems, critical functionalities and components.
And more generally, to evaluate the technical feasibility of the product, the complexity of the project, the coherence of the technical choices, the reality and the share of risk in the project & to build a “gap analysis” between the objectives & the maturity to date.
The founders must have a vision on the scale-up of the project and how to derise it as it goes along. It is possible to de-risk the project as early as the POC phase.

Methods, tools and documentation

Analysis of methods, tools and documentation :

  • What are the documents and how were they constructed?
  • Are the means of monitoring and organisation adapted to the project and the team? Are the employees aware of them, do they know how to use them?
  • What is the level of maturity of the documents? Are they adapted to the company’s size and the team?

DFX NRE & BOM (Design For X, Non Recurring Engineering et Bill Of Materials)

Relates to the study of :

  • delays and costs to switch from EVT to DVT and then to PVT
  • NRE costs (example: manufacturing a mold)
  • of the consolidated BOM draft

This is the stage of component sourcing, industrial partners and cost estimation (quotation and bill of materials).
In order to embark on a hardware project, you have to do it seriously and be fully aware of the difficulty, without it being a handicap.
Even if only to develop a POC the costs are much higher than the POC in software. These costs are exponential for MVPs, preseries etc….

Pre-selection of manufacturers, location and risk assessment

The objective here is to establish a shortlist of EMS*, potential suppliers, investigate localization possibilities and assess the overall risks of manufacturing.

*EMS = “companies that provide contract manufacturing services for electronic products: printed circuit boards (PCBs), PCBA (printed circuit board assembly, sub-assemblies)”.

We’re also looking at the partners in the project, what their scopes of intervention are and how they’re going to impact the way we work.

It is essential to choose the right partners. Your partners will need to have a good knowledges of existing technologies in your product speciality, industrialisation methods and processes, suppliers of technological solutions, normative and regulatory constraints, estimation of the different costs for industrialisation, service providers & partners for product industrialisation.

In the case of a fund raising, and in the same way that an investment fund will scrupulously choose a project on which it wishes to invest, hardware companies must also choose a fund that has not only a financial partner but also a partner capable of guiding and supporting them throughout the industrialisation process from product production to shipping and distribution.

Supply chain et logistic

It’s all about:

  • Studying the constraints of the supply chain and proposing the best solution according to the localization strategy.
  • Advise on customs denominations and general logistics issues related to production and delivery to end customers in France and other selected potential countries (should be limited to a reasonable number).

In summary, the due diligence conducted by Kickmaker allows to de-risk and mature hardware projects, to build an industrial roadmap taking into account the risks inherent to the project, to translate the technical elements of the project into figures in order to build a capital investment plan according to the stakes of the project, to source and qualify the best components and industrial partners.

This due diligence is particularly recommended to companies wishing to consolidate their project, to investment funds & business Angell wishing to acquire or invest in a company.

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