A Great Technology Due Diligence Story

egyptianFood Tasters for the King Food is an important part of a balanced diet.Fran Lebowitz

A few decades ago, I was an entrepreneur with visions of gold and a technology idea that even Frost & Sullivan thought was worthy of a 50 page report for a measly $2,500 per copy. Today, having carried that idea from my basement to a $100 million company on NASDAQ, I’m a partner in a firm that sits squarely between the capitalist and the technologist, serving that delicate roll of matchmaker between the money haves and the money wants. We call ourselves “food tasters for the kings.”

The kings are the many venture capitalists, investors and acquiring companies who sit at the thrones of funds overlooking their portfolios while a thronging mass of serfs jockey for audience and an occasional dole of capital. In the middle, like the old time food taster of medieval courts, we enjoy a special trust to taste the food offered the kings for the various delicate poisons buried in due diligence and only offer forth those companies that seem pleasant to the pallet.

 

Even in the best of economic times, in spite of our many successes and our freedom to call upon the king at will, ours is a role fraught with regal mood, for even when we offer forth a helping of the finest of businesses, sometimes our liege will look upon us and say, “how many times do I have to tell you that we don’t eat in the software sector.” We calmly bow back out of the royal chamber, plan stuffed in our shirt; never once mentioning that 20% of their portfolio, in fact the profitable part, is in the software sector.

While entering the royal chamber can sometimes be fraught with its special horrors, dealing with the serfs of the kingdom, that’s the real nightmare. To be in the middle of a money matchmaking service is to be perceived as in the company of angels, at least from the point of view of those who seek capital. Thus, from time to time, we find ourselves buried with prayers for service that sometimes consume us with awe, and sometimes merely consume us.

As a food taster, we can give more than a passing glance at the pitch that the kings would file in the round. Thus, we will spend more than 5 seconds looking at a concept presented by some math professor who hasn’t spoken to a fellow human in the last decade.

Food tasters are always looking for a new meal, even if it starts out looking like haggis neaps & tatties with a wee dram mixed with slices of raw carp and saw dust. We have long since learned how to bring expectations into line with the real world, so we will look deeply into the eyes of the unwashed before turning up our nose.

Sometimes even we get drawn into deals that no righteous mortal should ever endure. With our collective near century of technology expertise, when someone walks up with a plan to revolutionize the energy production of the world, well, our 5 minute review can sometimes turn into weeks.

One deal comes to mind…

My partner, called me one day and said, “You’ve got to look at this! It’s a company that seems to have found a low cost way to produce energy!” Visions of Pons & Fleishman danced through my head, the former kings of the cold fusion bubble, long since desiccated and barely a stain on the mantel of energy research. “Do they use a rare earth called Palladium?” I asked remembering the key component of the 1989 claim for cold fusion. “What’s Palladium?” my partner asked. Sadly, I remembered that I’m the technology lead on the team, and it’s my job to separate science fact from fiction. “Send me the plan,” I sighed.

In this day of the Internet, it took only thirty minutes before I found myself staring at an electronic copy of a business plan, some rather impressive resumes from a renowned national lab, and an mpeg video that knocked my socks off. There on the video was a clean-shaven guy in a suit, articulately guiding a tour of this machine — one side hooked to a battery showing a current drain of 5 amps and on the other, a gallopita gallopita machine calmly showing a current output of 6 amps. Put in 5 amps; get out 6, sounds like energy production coming from what could be best described as a cauldron of plasma and bangs.

I had recently had the unfortunate experience of plowing through a recent journal article discussing how a university professor had measured neutrons emanating from a small bath of bubbles using sound, cavitation, and an established freak of nature called sono-luminescence. Thus, I was primed to believe that cold fusion, in some form, wasn’t a violation of the laws of nature. Granted the possibility,. I picked up the phone and called the CEO to see what he had.

An hour later, this is what I was sure of. The CEO was technically competent, lacked the credentials to make this an easy feast for a king, didn’t know why he had surplus energy coming out of his cauldron, and yet was convinced he was on to something. He had also mentioned use of trace elements of Palladium in the mix, which had me wondering whether or not I was dealing with cold fusion. Sometimes, being the technical genius of a small firm simply means you know whom to call when you’re stumped by something that’s far afield from your academic training. Five minutes later, I was discussing this deal with a physicist at a different national lab.

He listened to the story, and between his various guffaws and snorts, he said, “well, it’s possible, but if it’s real, they’re probably generating a ton of neutrons, so you’d better get them to find out if there’s any radiation coming from the device, and if there is, they’d better buy some lead underwear before they start glowing in the dark.” Such are the inputs from the technology experts of due diligence.

Over the next few weeks, my partner worked with the company to prepare them for the royal audience, teaching protocol, manners, and coaching the financials, while I dug deep into the literature and experts, knowing that in the royal audience, someone would ask, “how does it work?” and the answer “no one knows,” would present us with a royal eviction notice.

At last, I came across a physicist who had a clue. He said, “There are two possibilities here. First, they have an efficient means of creating thermonuclear plasma, in which case it’s worth billions of dollars. Second, their measuring system is whacked, in which case it’s useless.”

Ah ha, the measuring system — key to the device’s capabilities is a meter saying 6 amps come out from 5 amps in. So off I went to the measurement community to see what manner of disasters could reside within the cold empirical world of current measurement devices. My new physicist in a long chain of physicists on this project made a simple observation, “the cauldron goes bang bang bang, right?”

I nodded. “Well, that means they’re generating a pulsed direct current, which means, rather than using a current meter, we need to see the current measurements every millisecond or so. It could be that the meter is measuring the peaks of the current, rather than the average.”

Thus, back to the CEO I went, circuit diagram in hand, and said, “Replace your current meter on the output side with this circuit and let’s see what you get.” Two days later came the report, instead of 120% energy efficiency (billion dollar market), proper measurement showed 20% energy efficiency (we just wasted weeks).

We canceled the audience with the kings, and I folded my physics hat back onto the bookshelf of the various hats that I wear. The CEO naturally threatened us with all kinds of lawsuits for the inevitable competitive business that he knew we were forming to exploit his invention. I had a last call with him where I said, “If you ever find us coming to market with your device, I promise, we will offer no defense in the litigation.”

Thus back I went to my task of knowing a little bit about everything, trying to keep one step ahead of the state of the art in all things, waiting for the phone to ring, which it always does, with my partner at the other end saying, “We’ve got this interesting deal in maritime leasing. What do we know about the R.O.I. of the Mediterranean cargo trade and the financing terms available for profitable shipping companies?”

“Not much,” I said, “but we will.”

This article was written by Glenn Fishbine

Glenn provides deep technology, mentoring, and technical partnerships.. He has four decades of experience in a wide variety of technologies and has held senior & board positions on several technology companies.
He focuses on the technology footprint and strategic planning for new ventures and provides leadership and coaching to product and engineering teams.
He can be reached at;
Glenn;  glennfish@gmail.com

612 387 7536
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4 thoughts on “A Great Technology Due Diligence Story

Add yours

  1. Are wetalking of new product coming to the market or the weaknesses of existing product? Not Clear. Interesting anyway.

    Thanks

    R S Nambi
    Consultant-World Bank

  2. That’s pretty funny. I initially thought the device was a big antenna, drawing energy from a nearby AC receptacle, but this one sounds even better.

    If you ever determine you need a consultant to avoid spending weeks on trying to figure out such inventions, just send me a note, few hundred $$ and a laugh is all I’ll ask. 🙂

  3. This is a wonderful story that made me laugh. I’ve been on both sides of the fence as a food preparer and food taster. I love this analogy it rings so true. If you’re considering raising money you do want a good food taster to get you ready. Well written and thanks for sharing.

  4. Interesting story. However, Palladium is a transition metal not a rare earth (it also belongs to the group of noble metals).
    And what on earth something “pleasant to the pallet” tastes like? 🙂

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