As an investor, you have two key priorities before, during, and after acquiring a software company — reduce risk and maximize returns. And now that you’ve secured the deal, it’s time to stabilize your investment.
Timing is crucial. The first 90 days are often your time of highest risk. Why? Your newly acquired intellectual property (IP) and key personnel — engineers and SMEs in particular — are at the greatest potential to walk.
Even if you have conducted some technical due diligence prior to the acquisition, that risk assessment likely left out these two critical elements.
Let’s take a closer look at where IP loss and R&D turnover put your investment at risk and how the post-acquisitions stabilization process at Modularis tackles these issues.
What’s at Greatest Risk in the First 90 Days of Your Software Company Investment?
Risk #1: Your R&D Talent Quits
Too often, high turnover among the R&D team is a side effect of acquisition. Investors don’t often have their eye on this risk. That’s because software investors tend to focus on sales, operations, customer support, and other aspects of the business, and are hesitant to influence or even closely examine the internal dynamics of R&D.
But if you don’t pay attention to your software R&D talent after the acquisition, your company’s key technical personnel might walk out the door along with key knowledge of processes, logic, and algorithms — or in the worst-case scenario, your proprietary IP. The consequences of this can be as mild as missed deadlines and slower progress, or as severe as being an existential threat to the business. In addition, if your technical experts don’t have a good reason to stay or don’t see the bright future you do, their departure may also damage your software company’s culture, which can in turn lead to even more attrition.
Consider these key personnel a critical component of your investment. Make sure they feel seen and heard. Put forth effort to ensure they align with your long-term vision. Get their input on what was working well, and where they see the benefits of change. This has to be done to both mitigate risk and ensure you can continue to service customers and innovate quickly.
Risk #2: Software Intellectual Property Loss
Your newly acquired software company’s intellectual property is another critical component of your investment, and your company may be worthless if it is lost or stolen. There’s never a time your IP doesn’t need protection, but the first 90 days after closing are when it’s most vulnerable to loss. IP leakage doesn’t always happen on purpose or with nefarious intent (though that DOES happen too), but investors need to be aware of it and take proactive steps to prevent IP losses.
Should your IP walk out the door in the head of an R&D specialist that fell into risk #1, you can expect your ROI to go with it.
Other types of IP loss mentioned earlier can include key institutional knowledge, or specific understanding of specialized business processes, logic, and algorithms — especially if they are not well documented and reside only in the heads of key personnel. This is an all-too-common scenario.
Overall, as an investor, you know there will be bumps along the way. But your R&D team and IP should not be rocky terrain. They are the foundation for your profitability. You need to make sure they are stable and secure as quickly as possible to reduce risk and maximize return. That’s where post-acquisition stabilization comes into play.
What Is Involved in Post-Acquisition?
At Modularis, we have a proven multi-step process for post-acquisition stabilization:
1. Document and blueprint your software IP
First, we send in one or two of our experienced software architects to identify, capture, understand and document your company’s software intellectual property. This includes blueprinting your actual code and technical assets in depth, along with key processes and algorithms that are often in the heads of senior developers or implemented in obtuse code elements that only one or two people understand.
You can’t build a successful company with institutional knowledge and technical processes locked up inside the heads of a few key people. Instead, you need a backup plan, you need to know what to do to move forward, even if some of your best technical people depart.
With our post-acquisition stabilization support, all of your software intellectual property to keep the company running stays within your control.
2. Build relationships with your technology team
Especially during the sensitive timeframe right after an acquisition, it’s important to engage deeply with the technology team. Modularis knows how to earn their trust and respect, work closely with them, and collaborate on the necessary blueprinting discussed above.
Getting key personnel to share the software IP and other institutional knowledge they simply know from their tenure at the company takes some strategic effort in order to engage them effectively. People sometimes like to hoard knowledge as a form of job security and other times people are simply working so swiftly on product development that they don’t take time to document before they move on to the next thing.
Bottom line, key technical personnel at a newly acquired software company want to feel respected and trusted, and they sometimes don’t feel heard by the new management. That’s where Modularis comes in. We speak their language and bring a unique combination of empathy and expertise to the mix which makes it much easier for them to feel respected and heard. Our culture and approach eases tensions, builds trust and enables them to be more candid and share their valuable insights about how to help improve the business. They feel heard, valued, trusted, and supported.
We’re “the grownups in the room” who can effectively connect with and guide your technology team and help align R&D with your investment goals.
3. Identify new product features, priorities, and opportunities for increased ROI
R&D stabilization is not just about employee retention and locking down your IP; it’s about maximizing your investment returns.
Because we work collaboratively with your technical team, new innovations can be uncovered and/or friction points within teams or lag within the product can be identified and corrected. All of which align with the goal of accelerating development velocity and maximizing ROI. Once value-adding features or improvements are identified, together with key stakeholders, we help you decide which are most worthy of further investment.
For example, a typical post-acquisition stabilization engagement might identify four of five different product features that would add value and drive growth if implemented. Based on our conversations with your technology team, Modularis helps connect the dots so you make better-informed decisions about where to invest — giving you a clearer view of what will drive the biggest ROI. In short, we turn your investor’s lens on software product R&D.
Again, the Modularis team is “multi-lingual” — we can speak to the concerns of investors, CEOs, and the tech team. We bridge gaps and overcome disconnects between investors and their newly acquired software companies during those critical first 90 days that can make or break your investment.
And by creating a clear blueprint of your software intellectual property, we help protect your most valuable assets and build a strategic software product roadmap for future growth.
Neul Capital Holding is a great example of an investor leveraging the assessment and other Modularis software solutions after acquisition.
“Modularis has provided a level of consistency in development day to day. One of the biggest obstacles you face in any acquisition is building a process that’s repeatable but also understanding a product altogether . . .
. . . Making sure I could mitigate risk but also do it with a group that had integrity and followed a similar belief as Neul Capital is really what instilled me to find a partner and excited me about what I found with Modularis.”
— Adam McGregor, President and CEO of Neul Capital Holdings
Looking for a similar partnership? Let’s discuss.
Achieve EBITDA targets and maximize revenue per head in your next acquisition. In as little as 10 minutes with me, you’ll see how Modularis can help de-risk and validate your investment in days — not weeks or months.