If you want to get an investment or you are looking for a merger or acquisition for your company, technological due diligence is something you should pay attention to.
What is Technical Due Diligence?
Technological due diligence, also known as technical due diligence, is a structured and in-depth analysis of the technical condition of your company.
It is the process of analysing, assessing and evaluating the technical infrastructure and architecture, processes, software products, code quality, possible risks and IT staff of your organisation.
Tech due diligence provides a comprehensive and detailed analysis of your company’s features, strengths and weaknesses before M&A (merger and acquisition) to provide investors with all the necessary information about your company.
When is tech due diligence necessary, and who conducts it?
Technical due diligence is usually carried out before M&A, or you get an investment, and the investor is typically the one who initiates it. The investor (acquirer) can use their in-house team or hire a third party to conduct tech due diligence.
The investor uses this process to analyse the technical state of your company and identify the possible risks associated with buying your company or product.
What does a tech due diligence consultant do?
A technological due diligence consultant or consulting firm is a team with the specialised expertise that performs the technical assessment and evaluation of an organisation’s technology, product, architecture, and processes.
Some of the duties of a tech due diligence consultant are:
- Comprehensive IT Assessment
- Scalability Evaluation
- Risk Assessment
- Budgetary Analysis
What is tech due diligence data discovery?
This involves collecting and evaluating data from various sources to provide a detailed and comprehensive technical due diligence report. Tech due diligence is an assessment that relies on facts, not words, and this is why accurate data must be collected to give an objective and comprehensive report.
Tech Due Diligence Checklist
- Architecture and Infrastructure
This focuses on your product’s architecture, APIs and integrations, scalability, etc. You should be able to justify the logic behind your decisions regarding systems and architecture.
The critical technical matters that will likely come up during the due diligence are:
This is about your architecture type. It can either be monolithic architecture or microservice architecture. Each structure has its unique features which affect your project’s future. You should explain why you’ve chosen a particular system for your company.
Scalability means the ability of your company to grow and accommodate increasing demands. Investors will be interested in your project’s ability to scale successfully in the tech due diligence process. While creating your project and choosing the architecture and tech solutions, you should not forget to consider scalability.
- APIs and Integrations
Having all your documentation at hand is essential to your readiness for tech due diligence. During the due diligence process, you should be ready to present your APIs documentation and the services you’ve implemented through integration.
This is all about the tools and frameworks you have used for your project. Ensure the tools you have chosen for your project development are relevant to your company’s goal and vision.
- Code quality
Your code quality, data health and the logic of decisions are essential to investors. Any investor would want to avoid additional costs due to poorly-written codes.
The security of your product or company is one of the most important things to consider in your technical due diligence checklist. You must prove that your project or company can withstand hacks, malware attacks, etc.
You may need to provide the results of security checks during this process.
The people behind your project’s technologies and success are essential to tech due diligence. You should provide the documentation and reports regarding your key team members, their roles, functions and capabilities.
You should also include reports such as organisational charts, staffing, contracts, labour costs, etc.
- Development Workflow
The operational processes of your company are of interest during the due diligence process. Charts and metrics showing the nature of the workflow, productivity levels, team members’ performance, and the quality of delivery should be provided.
- Intellectual Property and Licensing
Investors will want to make sure that your project is unique. The tech due diligence experts will assess your attribution report and patents confirming and protecting your intellectual property.
- Development Strategy
The investors will also want to know your vision and plans for the project. They’ll like to learn more about the future of the project they’re about to invest in. What is your product development roadmap? What are the milestones to expect in future? What are the possible challenges that may occur? Make sure you have sufficient proof, such as a detailed growth strategy, to support your answers.
Importance of Tech Due Diligence
- It determines the product’s actual value.
- It evaluates potential risks.
- It predicts the product’s growth potential and forecasts payback.
- It conducts in-depth verification of the technical solutions.
Costs of Tech Due Diligence
The costs of full tech due diligence vary from situation to situation. The number of experts involved, the size of the transaction object and the demands on the scope of the due diligence all affect the final costs.
Tech Due Diligence Report
Tech due diligence is an objective report compiled by a reviewer with the necessary expertise. The information is based on document evaluation and meetings with founders, product owners, and tech leaders.
The report will cover the value of your technology systems, the condition of your assets, the flaws in your company, expected updates and potential risks. Finally, the report is sent to the investors and the startup team.