Whether you’re preparing for an investment, acquisition, or a strategic partnership, technical due diligence is about proving that your technology supports your business model, risk profile, and growth ambitions.
Rory Gibson, fractional CTO, Due diligence, and Technology advisor, has shared his insights on what you need to do when preparing for a technical due diligence assessment.
What technical due diligence is…and what it isn’t.
Technical due diligence is not about analysing your code.
Instead, it focuses on your architecture, documentation, organisational charts, operating practices, management of legacy systems and technical debt and security posture.
The purpose of technical due diligence is to confirm that your systems and processes are fit for your sector and ready to scale.
Technical due diligence is very different to legal and financial due diligence.
The first thing to recognise is that technical DD differs from the legal and financial DD that you’ll go through. But all are important as a way to verify the value of the business.
Legal DD is a review of legal compliance, contracts, and potential risks. Financial DD confirms the numbers are correct. Technical DD validates that your technical systems, people, and processes are fit for purpose and will help protect, and scale the business.
Key points that tech-led organisations need to think about.
If you’re a SaaS, FinTech, AI/ML, etc company, investors will want to know that your tech stack supports your company’s valuation.
You’ll be expected to explain.
- How your product is built
- Which technologies were used to build it?
- Who built it (and whether they are still working for the company)
- How much does it cost to run?
How tech-led organisations can prepare.
Ensure you have clear documentation, including security policies and team charts showing how product and technology teams work together.
You must be open and honest with assessors; any discrepancy could become a red flag.
Who will be interviewed as part of the process?
You should expect at least 8-10 hours of interviews with assessors.
As a minimum, they will want to speak to the following people (or equivalents):
- Chief Technology Officer
- Chief Product Officer
- Head of Engineering
- Head of Platform / Infrastructure
- Quality Assurance
- Compliance Manager
- Security Lead
Key points that tech-enabled organisations need to think about.
There are different processes in place for tech-enabled businesses, such as retail brands, professional services or those with brick-and-mortar premises.
You’ll be expected to explain.
- Vendor management processes
- Evidence of hardware and software licences
- Asset tracking
- Technical issue resolution, including ticketing and prioritisation systems.
- Compliance and audit trails.
How tech-enabled organisations can prepare.
It’s about making the most of your reports. If you’re working with managed service providers, then you need to document your SLA performance.
Details such as patch compliance, backup success rates, vulnerability scans, and ticket trends will go a long way to showing that your infrastructure is working as it should.
Who will be interviewed as part of the process?
Like tech-led businesses, you should expect at least 8-10 hours of interviews with assessors.
As a minimum, they will want to speak to the following people (or equivalents):
- CTO/ IT Director / Head of IT
- Managed service providers (e.g. account manager or technical lead)
- Compliance & Legal Managers
- External audit partners
Cybersecurity is a top priority for all technical due diligence.
Whether you’re tech-led or tech-enabled, your cybersecurity posture is one of the biggest concerns for any investor.
The due diligence will check whether your systems comply with regulations, who has access to your systems, and how that access is managed.
The purpose of the due diligence is to assess your security culture and ensure it matches your sector’s regulatory standards, and that you’re investing the right amount in keeping your data and IP safe.
The sooner your preparations start, the better.
Technical due diligence combines hard evidence with human insight. Poor preparation could erode your company’s value, leading to restrictive investor conditions, or even stop an investment round/ partnership/exit from happening.
Start your preparations early, long before the due diligence process starts. That way, you have time to collate documentation and clarify processes and responsibilities.
Consider working with a neutral party or experienced advisor to assess your posture and identify gaps, giving you time to resolve them before due diligence starts. DD and deal negotiations are always hugely time-consuming, so you’ll want to be as prepared as you can be well in advance. Preparing early will allow you to spot the easy wins and ensure your team can confidently explain architecture, processes and responsibilities.
To chat about any of the above or for an introduction to Rory get in touch on info@legaledge.co.uk
