Law Professor Demonstrates the Need for Technology Assessment in Connection with Investment in High Tech Companies

FAYETTEVILLE, Ark. - High-tech companies seeking investors should have their technology assessed by outside evaluators, according to a University of Arkansas law professor and a former UA computer systems engineering professor. Currently, there are no standards for technology assessment in high-tech companies.

Ronald Goforth of Beta-Rubicon, LLC will present a paper authored by himself and Carol Goforth, Clayton N. Little Professor of Law at the Law and Entrepreneurship Research Conference held Friday, Oct. 20, at Lewis and Clark College in Portland, Ore.

The paper, entitled "Technology Due Diligence - The Need for and Benefits of Technology Assessment in Connection with Investment in High-Tech Companies," addresses the need for a paradigm shift to technology evaluation standards in an industry with billions of dollars at stake.

"So much future economic growth will come from technology-based enterprises," Carol Goforth said. "When a new company comes along, investors need to know whether the technology involved will be worth investing in."

The researchers point to cyclical highs and lows in biotechnology and artificial intelligence investments, which proved a rocky road for many investors. People now have more realistic expectations of these technologies, the Goforths argue, but technology assessment might have paved the way for smoother investing.

Investors want to know about the potential hazards and benefits of a particular technology before they spend their money. Technology proponents want to have enough information to convince investors that their projects have real value.

In conventional due diligence, independent consultants provide an in-depth analysis of the financial and operational conditions of a company targeted for investment, merger or acquisition. The consultants try to find, identify and estimate the impact of purchase price or investment conditions and evaluate various aspects of a company to determine its viability.

The Goforths propose that the same model should be applied to a company’s technology. Without such standards, they argue, investors may make imprudent investments or neglect worthy technologies.

"It’s easy for companies to create a demonstration that looks good," said Carol Goforth. For example, a person could make a prototype for an instantaneous language translation program by pre-programming a few sentences without actually creating a finished product. "But creating a program that provides translation of natural languages requires more programming, technology and effort, as well as better algorithms describing human communications than we are presently able to encode," Goforth said.

Ideally, technology assessment would include an analysis of the technology plan, a search for state-of-the-art developments in that particular area, and a careful review of related and competitive technologies. It would also include an assessment of the resources required to bring technology from the development stage to full commercial introduction.

"It takes 20 percent of your resources to get a project 80 percent finished, then it takes 80 percent of your resources to finish the last 20 percent," Carol Goforth said. "People often don’t plan for that."

Providing a thorough technology assessment requires companies to spend time and money on independent experts, something many technology proponents may be reluctant to do.

But companies that do not invest in technology assessment risk losing cautious investors, while investors who don’t demand such assessment risk spending money on sub-optimal technology, the Goforths argue.

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