Tech Due Diligence Fake Product

When I work in a late-stage startup as a CTO, my CEO often looks for small startups for acquisition as an investment.

Sometimes, I need to conduct tech due diligence to determine if it is worth buying the company or its team. One day, one of our subsidiary companies requested to hire a former CEO from a startup. They claimed the company was impressive and had valuable assets.

I met with them, and the CEO proudly told me they had already built a product-ready solution. However, due to budget constraints and timelines, they wanted to sell it to us. I suspected that the solution might not be fully developed, so I assigned one of my engineers to review their product. At the same time, we arranged a meeting with the former tech lead who designed and built the core product himself.

During the meeting with the CEO, tech lead, and our tech team, the CEO repeated what he had told us. Suddenly, the tech lead cut in and told us that what the CEO claimed was wrong. He revealed that they had created a dummy copy to make it seem like the product worked to secure funding, but in reality, they hadn’t built or finished it at all. The CEO claimed they didn’t disclose this to him, and the tech lead’s response was a brilliant, yet humorous, admission: ‘That was your idea to fake our product, and you know it.’

Within a few minutes, the meeting was over. I speculated that the CEO might be dishonest, or the tech guy could be cunning, but such situations are quite common in startups. We often build a proof of concept (POC) to test if a concept works. If it works anyway then we suddenly decide not to proceed with development any more even everything was hard-coded, but the next step is to sell it quickly.

In startups, we frequently talk about speed and execution, but the reality is not always as we imagine. If you mislead yourself, you might miss valuable opportunities.

#startups #founders #duediligence #MVP