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High Tech Typical Issue – Does the product work??

Author: Leon Harris

When considering the expansion, acquisition or sale of a business, there are many questions to check out.

Strangely enough, large groups are sometimes prepared to lay out large sums to acquire a start-up company with technology that doesn’t yet work i.e. no proof of concept (POC).

We experienced one deal where a well-known telecom group paid hundreds of millions of dollars for a communications start-up with software which sometimes crashed! After the M&A deal, the buyer fixed the software bugs and the product became hugely popular worldwide. 

Diagnosis needed:

How do you know whether something actually works as intended? When considering the expansion, acquisition or sale of a business, there are many questions to check out.

We do not recommend taking chances. We do recommend managing M&A and other risks in a prudent way. How? Read on for our take as non technical people.

Due diligence:

Technical and other due diligence by the buyer is vital. Is the product concerned likely to be a good buy? If so, take ample precautions. We discuss some below.

Milestones:

If you are prepared to buy a start-up still at the development stage, consider linking M&A payment to meeting development milestones e.g. proof of concept (POC), proof it works, regulatory approval if needed, start of sales, etc.

Earn-outs:

Aside from performance milestones, consider linking M&A to the achievement of increased sales, profits, cash flow or other financial targets.

Time to pay / takeback note:

Consider agreeing to delay the timing of the M&A payment. One way might be for the buyer to issue a takeback (or holdback) note giving it time to pay. And if a milestone or financial target is not met, consider delaying further or reducing the note balance payable by the buyer.

Legal aspects:

Always consult in good time with law firms in each country concerned regarding all relevant legal aspects. In particular, ascertain whether legal protection is in place such as patents or copyright. Check also that all privacy legislation is observed and that an appropriate privacy policy is publicized and observed. Check that appropriate anti-hacking data security measures exist. Check that any environmental requirements have been met. Check what else needs to be checked! All this is in case the product does indeed work!

Tax aspects:

Always consult in good time with accountants, lawyers and tax specialist in each country regarding all relevant tax aspects. These may include: claiming and using tax losses, tax incentives and R&D incentives. Also check double tax relief including foreign tax credits or  foreign income/capital gain exemptions. Check that any structure or business model adopted is not over-aggressive and prone to tax authority challenge. Check what else needs to be checked! Again, this is in case the product does indeed work!

Do you need AI or people to get a business deal off the ground?

You need both. A good AI (artificial intelligence) agent may help provide an initial general picture and point out product strengths and weaknesses it is programmed for. But human specialists apply judgement and often notice specific aspects to consider. 

What else matters in a deal?

Plenty. In particular, evaluate the motives, resources, risks, bargaining chips and likely concerns of each party. And watch the timetable. 

In conclusion:

In the world of high tech start-ups, be careful before and after considering whether to buy into a product which doesn’t yet work. Is it a good buy or good bye?

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© All rights reserved, 3.6.2026. 

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