Technical due diligence is a term that sounds pretty intimidating. And I won’t lie to you: the process itself is actually pretty intimidating.
But at the end of the day, it’s a lot more beneficial than it is scary. This is especially true if your company is on the path to gaining a new partner or financial investment.
Technology due diligence makes sure all your proverbial ducks are in a row and that everyone has a clear idea of what’s in store for the company.
Let’s take a closer look at technical due diligence, what it means for you and your potential stakeholders, and how you can prepare.
What is technical due diligence?
Technical due diligence is a deep dive into a business to examine things like:
- Infrastructure
- Architecture
- Code quality
- Applications
- Network
- Security (software security, data security, etc.)
- Data storage
It’s usually performed when ownership or resources are changing hands, whether it’s a partnership, merger or acquisition, or direct financial investment from entities like angel investors, venture capitalists, private equity firms, and the like.
The main reasons for technical due diligence are to make sure everything “under the hood” is as promised, evaluate the business’s strengths and weaknesses, and identify any risks and opportunities.
At its core, technical due diligence makes sure the purchase or investment is sound, for all parties involved.
4 ways technical due diligence benefits business owners
Technical due diligence can have several benefits for your company. Let’s look at a few.
1. It’s a verification process
Due diligence is a form of verification in a few different ways. For starters, it verifies to your potential partners or investors that you are what you say you are. This brings confidence and trust to whatever deal you’re making. (After all, many of these people and businesses have learned the hard way that just because a team says something is true does not always mean it’s true.)
It also verifies that your business is a well-oiled machine, with all the parts and pieces in all the right places to ensure you have the potential to be successful in the long run. This brings peace of mind, not only to your future stakeholders but also to you and your team.
2. It brings in new knowledge and perspectives
Technical due diligence is often performed by an experienced third-party company. By bringing in external experts, you’re injecting new knowledge and perspectives into the business evaluation process.
This makes it likely that new things will be brought to your attention, like issues you may not have seen, effective strategies you may not have implemented, or innovative ideas you may not have considered. And if any problems or inefficiencies are uncovered during the process, you’ll have expert insights on what steps you can take to fix them.
3. It touches on the classic SWOT analysis
Beyond basic verification, technical due diligence can be a great way to evaluate where you are in your industry, market, and niche, as well as in comparison to your competitors. You can think of it like a classic SWOT analysis:
- Strengths: Which internal attributes and characteristics give you a competitive advantage? These can include anything from a strong brand to unique services to innovative processes.
- Weaknesses: Which factors might hinder the success of your brand or apps? These could be areas where your company lacks resources or skills, or faces operational challenges.
- Opportunities: What can you leverage to benefit any of your offerings or your brand as a whole? This could include emerging markets, tech advancements, or trends that align with your company’s strengths.
- Threats: Are there any external factors that pose potential risks or challenges? These could include economic downturns, regulatory changes, or competition that might impact your success.
While technical due diligence isn’t the same thing as a SWOT analysis, you’ll be weighed out against the market and other companies — so you’ll uncover SWOT insights whether or not it was the original plan.
4. It improves operational efficiency
When someone is diving into every nook and cranny of your business, they want you to succeed just as much as you do. They want you to be as operationally efficient as possible, because this paves the way for maximum revenue and ultimate success.
Rest assured that any inefficiencies, issues, or bottlenecks will be uncovered and examined. Whether it’s outdated software, redundant processes, or underutilized technology, it’s likely that they’ll be flagged for improvement. In this way, technical due diligence helps you streamline operations and improve your overall agility.
Tips to prepare your company for technical due diligence
Here are some things to keep in mind as your time on the chopping block approaches (am I helping the intimidation factor?).
- Make sure your documentation is as detailed as possible, including code repositories, architecture diagrams, and software licenses.
- Conduct your own internal audits to proactively identify and address potential weaknesses or inefficiencies in your software systems — your future stakeholders will appreciate it.
- Protect your intellectual property (IP): confirm that patents, copyrights, and other IP assets are well-documented, up-to-date, and legally secure.
- Make sure your data security measures are compliant, including how customer data is handled, stored, and protected in your systems.
- Do the same for other types of regulatory compliance, like software licensing agreements and any relevant certifications.
- Present a clear technology roadmap that outlines your future plans for development and growth, including potential updates, enhancements, or new features.
- Train your team so they’re ready to provide any necessary documentation and do well in interviews related to their role and expertise.
- Be prepared to provide financial documentation and discuss budgeting for future development and maintenance.
The benefits outweigh the intimidation
Savvy potential investors or corporate partners will embrace technical due diligence, and you don’t need to be scared of it. It may feel overwhelming, but stay focused on the outcome. In the end, it will give you a stronger understanding of where you stand in the market and what you can do to improve.
You’ll also gain the trust of your potential stakeholders, showing them that you’re as awesome as you promised during your pitches, presentations, and negotiations.
As long as you’re prepared, you’ve got much more to gain than you have to lose.
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