Intium – a standardised due diligence tool for investing in tech
Recently, we had a great conversation with e-Estonia and the e-Estonian team (hi, Dea!) about why it's important to have a consistent and standard approach to tech diligence - something that pushed us to create Intium Tech and our Sonar product.
We had a fun talk and would love to hear your thoughts on it.
As always, happy to pick up a discussion any time - reach us at firstname.lastname@example.org.
All due diligence – financial and legal – is standardised nowadays. But even though technology has been front and center for decades, the financiers still haven’t figured it out. Maybe they won’t have to if Intium has anything to say about it.
Intium has developed software that, combined with their team’s expertise in private and growth equity, offers a standardised solution for tech due diligence. And they plan to make it go global. “Our diligence process is like no other and is increasingly more useful for decision-making as well as for bootstrapping a healthy value creation plan,” claims their company page on LinkedIn.
We talked to the company’s co-founders to find out more. Agu Aarna has previously worked in companies like Bang & Olufsen, Ericsson, and AdCash. Mart Lumeste has experience from companies like the Estonian leading energy firm Eesti Energia and telco Telia Eesti, as well as Bang & Olufsen, Zlick, and Bigbank.
Both know how to write code but also how to manage big organisations. And with the Intium team collectively, they also completed 450+ technology due diligence processes. All this wisdom and experience has been molded into Intium, a company founded less than a year ago that helps its clients acquire and grow technology and tech-enabled companies.
How was Intium born? What is the problem you are solving?
Mart Lumeste: Simply put, when you buy a car or a company, you want to ensure that the goods you buy meet your expectations. It’s easy with a car – you take it to the service, check it and find out that something is wrong and it will cost x euros to fix it. You accept that quote to the seller and agree that you will pay x amount less for it. And another important thing is what are you buying that car for? If you want to drive with your family, you will not buy a Formula 1 car.
When you look inside a company, you check the legal side and do commercial due diligence. Technology is another important component. All the company’s technology is analysed against what the investor wants to do with the company.
Different funds mean different investors mean different types of business plans. Our job is to understand what investors want to do with a company. They might want to merge two companies or buy one and split it into two; they might want to take it to new markets. Or they might want to optimise its finances and sell it once the numbers look better. There is always some plan with the company.
Agu Aarna: This is where we come into play; we are the company that helps technologically evaluate how competent the investors’ plan is to realise their investment thesis.
Suppose the investor plans that the company needs to grow 10x the number of users when entering a new market. In that case, we need to see, technologically, whether this architecture can sustain growth or what needs to be done to multiply the number of users. They ask us for advice to validate their plan’s viability.
Another thing is that often the private equity targets that investors are looking at have already been on the market for 5-10 years, so they may have a technological burden or tech debt. What matters to these investors is whether this technical component allows them to realise their ambition.
Technology due diligence has started to play an influential central role in investing because no company can survive without using technology to one degree or another. And while all due diligence – financial, legal, etc. – is standardised nowadays, then technology is a field that is rarely understood. Even though it has been front and center for 20 years, the financiers still haven’t figured it out. Based on the hired consultants’ personal impressions and experiences, it has been very subjective. The way it works is that the consultants go to these companies the investors are interested in and ask hundreds of questions that require yes-no answers. This image is very much aimed at assessing the company’s technological prowess on an absolute scale. As an investor, it doesn’t really tell you anything.
Mart Lumeste: A significant concern with due diligence from a technology perspective is that the process is not standardised. Financial audit, for example, meets accounting standards, etc. There is nothing like this in technology. It is not very clearly structured. Figuratively, a purchase worth a billion might be based on someone’s friend who knows something about IT.
Our ambition is to standardise the process of technology due diligence globally to ensure high-quality output and consistency. We have developed our methodology – how to compare the company’s state with what needs to be done to fulfill the investment thesis. We have made software that allows you to create and maintain this structure – Intium’s Sonar.
But mind you, humans will not wholly be taken out of the process. We still do an assessment, in the form of a consultation, as we have done so far – we do interviews with the company, read their documents, and spend time with people (software architects, etc.) to understand the state of the company. This method keeps us on our toes, so we don’t go astray. The software ensures we don’t miss anything and represent the findings competently and uniformly.
Agu Aarna: Typically, any investment assessment means that people talk to people. We are not unique in this, but we have our methodology, and our uniqueness is what is not found in many places – we do not evaluate companies on an absolute scale. We take into account the business goal – a comparison between the required status and the current status. On average, each report has an extreme amount of consultant subjectivity. And private equity funds use specific consultants repeatedly because they are used to their work. But this approach is not sustainable because you can’t resist the market’s demand.
And this is how the thought arose – we have the methodology, but how could we take out the subjectivity of a consultant? We started to pour it into our software and thus managed to open several doors. Quality and consistency improved. Different companies are comparable. The software provided a certain standard and made it possible to do this. And it also made it possible to require the consultant to cover the areas that are not important in his opinion. It also allowed us to start improving the process iteratively. To date, this software has created a situation where absolutely every report is of unprecedented quality.
Due diligence does not have to be black and white – yes, buy or no, do not buy – instead, it has to be a good enough tool to understand what you will be working with during the following years. Based on this, a sales strategy will be built from day 0. One area in our report describes this – we assess the company’s ability to increase turnover and profit margin and be attractive in the market. Another aspect – since we can describe this company in a standard way, we would like to try with some of our clients that we follow a company or several during the entire investment process. Our tool would allow it to be tracked. One aspect would be to evaluate whether our assessment was accurate, and the second is whether these things happened when the investor wanted.
Mart Lumeste: We are disrupting an industry that has worked in one linear way – as a consulting business. Take the legal tech boom, for example. Why does a lawyer paid several hundred euros per hour have to prepare the same standardised contracts daily, and you, the client, pay for it? Why are these things not automated? We are in precisely the same place in our industry.
On the one hand, we reduce the consultants’ workload – they don’t have to go and prepare PowerPoints, and on the other hand, we simplify working with massive data points when investing. Large companies make in-house programs to compare their company’s financial data. We do the same thing from a technology angle. And we will start to automate it as well. This area is the future, and we are just in the beginning, barely scratching the surface of different options and possibilities in the industry.
Who are your clients?
Mart Lumeste: ~60% of our business comes from the USA, ~35% from the EU, and the rest from the rest of the world – Australia, Africa, etc.
Agu Aarna: Our client list is mostly very confidential. But we can name some – US company Uniphore (a conversational AI service provider), a European conglomerate EUROWAG (telematics and financial services provider for commercial vehicles). We can reveal that most of the TOP5 private equity funds have worked with us.
Mart Lumeste: Naming clients is one thing; deals are another – as a rule, we are not allowed to talk about the latter. There are many things at play here, but only when a fund or company completes the transaction and makes it public can we ask for the right to talk about it.
Why hasn’t someone in Silicon Valley already done something like this?
Mart Lumeste: There are several companies and products that will automatically analyse software codebase. The result of that is usually aimed at very technical people. Secondly, we do a 360 view of the company. We will look at their processes, organization, leadership, product management practices, infrastructure, etc. – areas that would be left uncovered with a code scan.
Automating and scaling technology consultancy is a different beast, and often the problem is the size of the company – turning a big ship around is much more complex than doing so with a small boat. Plus, our secret sauce is, of course, the fact that we are Estonians. We are so used to e-services and the digital state compared to the rest of the world.