By Will Critchlow
This post will be most interesting to investors, or marketers working for investors. You might not often think of VCs and SEOs working together – but we’ve crossed paths many times. For example, high-profile investor and industry expert Mark Suster presented at our conference in San Diego, we’ve worked with many well-funded high growth startups and – less visibly – we’ve been involved in SEO due diligence.
Well, I guess we should probably start by answering the question what is due diligence?
When a company is sold, or a significant investment is made in the private markets, the process typically reaches some non-binding offer or term sheet relatively early in the process. Before that offer becomes binding, or the deal is sealed, there is a need to validate the assumptions and information the seller provided early in the process. This process is called due diligence. The scope and scale varies depending on the size of the deal, and on the access the buyer has to proprietary information – sometimes provided only in very controlled circumstances within a literal or digital data room.
SEO due diligence is a process we’ve run a few times to review digital marketing performance and assumptions about future performance on behalf of investors or acquirers. Frankly, I think we should be involved in a lot more deals given how critical digital channels are to most deals.
While I was writing this post, I spoke to some investors I know for their takes. They all had their own horror stories, for example:
“In one example, a company which had an in-house SEO ‘expert’ wasn’t indexing 80% of its pages correctly” — Rob Moffat at Balderton Capital
Obviously, there can be wider marketing and digital marketing elements that need validation (and we have specifically worked on PPC, social, and analytics elements of due diligence in the past). In this post, I’ll be focusing on organic search because it is an area that can be investigated to some extent very early in the deal’s lifecycle, and because there are so many opportunities for hidden information, and for future performance not to look like the trends a company has seen to date.
It’s worth re-emphasising that last point – I’m shocked that more deals don’t include a digital marketing due diligence. It’s so easy to make it look like a digital marketing strategy is sustainable when it’s not, or to show vanity metrics that don’t drive real business performance.
The share price of Demand Media, an example of an unsustainable marketing strategy.
When we perform an SEO due diligence, we’re looking to:
Rather than getting buried in the minutiae of search perfection, it’s important to remember the audience. Smart investors care about significant business upside potential and the size of any risks. This isn’t about figuring out all the small tweaks you’d make to the site if you could, but rather it’s about helping an investor evaluate a potential investment.
It’s tempting, during this process, to hedge in a lot of cautious language. Any individual deal is clearly only a good or bad idea based on its price and structure, and so we typically can’t give a true go / no-go opinion. But we do try to get off the fence in the following ways – we want to come to a firm opinion on:
How do you perform an SEO due diligence?
We have seen three broad kinds:
(Note: #1 also covers situations where an activist investor or market analyst wants to make opinionated comment on a public company such as eBay or Yahoo).
I’ll run through each case in turn:
Many of the skills and much of the knowledge needed to perform a due diligence effectively are very similar to the skills needed to perform the kinds of audit you might carry out in the course of a regular marketing campaign. The biggest difference is that an audit would focus on how to capture opportunities and mitigate risks, while the output of a due diligence is more about the scale and likelihood of upsides and downsides.
The ordering and depth of each piece will depend on the scale of the website itself, the preferences and knowledge of the investor, and the time constraints of the project
Some parts of the list of “external due diligence” tasks get easier if you have access to internal data – especially analytics and search console – but you still have to do most of the legwork in the previous section. In this section, we are going to focus specifically on the new questions you can answer with analytics access.
As a sidenote, some of the other areas you might seek access to, if they are available are:
But as far as performing the actual due diligence goes, the key things you can now investigate in addition to the external list above are:
If you have access to market data, you can also benchmark a lot of this against the industry. Market data can come from published reports, general industry experience, or specific questions to key contacts (on or off the record).
Once again, this needs packaging up to gather insights and make recommendations. We’ll get to that after our section on the additional opportunities when you have access to a co-operative management team:
If you have access to a co-operative management team, you can drill into any area of confusion that arises in the audits and explorations above. There are also some standard questions that make the task easier including.
There are three main benefits of this kind of access:
That third point is particularly important if the marketing team is going to continue in place post-acquisition or post-deal. There are even versions of this kind of due diligence that include in-person interviews with existing team members and specific recommendations to the acquiring / investing party about the team’s strengths and weaknesses. Keith Wallington at Seedcamp said:
“We see a significant shortage of strong growth marketing skills in all geographies and company stages currently. Often marketeers are strong in communications and messaging but lack the skills to convert those outputs into pipeline driving, sale generating activities. Performing an audit on the SEO posture of a business is a strong indicator of the commercial marketing skills at play.”
One of our core values is:
It’s not our job to deliver reports. It’s our job to effect change.
However, especially in situations like a due diligence, the client will often come asking for a report. It’s our job to figure out what they really want, which is often a hierarchy (see: the pyramid principle):
I like to think about the work starting in Excel, moving to Word, and ending in Powerpoint (i.e. starting with data, crafting an argument, and ending with storytelling). But remember that it will typically be delivered in the other direction – you will stand up and tell the story, then circulate the written document, and provide the appendices as an email attachment for anyone who’s particularly keen to drill into the details.
You can contact us here if you’re interested in hearing more.