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Regardless of whether you’re a large corporation or a small startup, technical due diligence is crucial.
It not only helps you identify risks and threats, but also provides a more accurate picture of a company’s actual value and potential. Although it’s more commonly used to assess potential acquisition and investment targets, technical due diligence can also be applied internally in advance of a major event like an initial public offering.
As you might expect, technical due diligence can be incredibly complex. It’s very easy to go about performing an assessment the wrong way. Let’s discuss how you can avoid doing so.
Understanding Technical Due Diligence
During the technical due diligence process, your goal is to perform a thorough assessment of a company’s technology. In addition to software and hardware infrastructure, this includes its products, product roadmap, internal practices and policies, key differentiators, and supply chain. Typically, technical due diligence is associated with acquisitions, mergers, and initial public offerings.
Depending on the size and nature of a company, technical due diligence can be incredibly time- and resource-intensive, particularly when performed in conjunction with other processes such as legal due diligence.
Key Components of Technical Due Diligence
Even a mid-sized organization may have several hundred items to review. In light of this, we’re going to break the process down into a few specific categories.
Ecosystem
This category encompasses both hardware and software, including a thorough scan of a company’s code base. It includes, but is not limited to:
- First-party software.
- Third-party software.
- Licensing agreements.
- Software and hardware dependencies.
- Known vulnerabilities.
- Business partners.
- Third-party suppliers.
- Integrations with clients.
Products
Particularly relevant for companies whose portfolio is focused on software, software technical due diligence for products encompasses:
- Current products and services along with their overall roadmap.
- Information about revenue and revenue growth.
- Customer retention and churn.
- Competitive differentiators.
- In-development products and services, including development effort and cost.
- Potential barriers to entry for competitors.
- Current total addressable market for the company.
- Possible current and future monetization opportunities, such as unaddressed markets or demographics.
Intellectual Property
Closely related to products, technical due diligence for intellectual property covers the following:
- Any third-party or open-source dependencies within the company’s products.
- Claims, settlements, or litigations surrounding the company’s intellectual property or use of intellectual property.
- Current patents.
- Registered and unregistered copyrights.
- Patent applications.
- Trade secrets.
- Marketing collaterals.
- Domain names.
- Non-compete agreements.
- Non-disclosure agreements.
- Current law firms and/or legal advisors.
- Relationships with independent contractors or consultants.
Systems and Practices
Technology is about more than software and hardware. The technical due diligence process must therefore also assess a company’s engineering practices and the technical systems that they’re meant to support. This may include, but is not limited to:
- Factors that may negatively impact a company’s growth or value, such as inefficient internal processes or an outdated technology stack.
- Gaps in the organization’s security practices.
- Software or system vulnerabilities and whether the company is aware of them.
- The company’s overall risk appetite and risk tolerance.
- Compliance and data integrity issues.
- The effectiveness of the company’s existing tools and practices.
- Possible barriers to integration with the company’s architecture and technical personnel.
- Whether or not the company has concrete processes and plans in place for disaster recovery, incident response, threat hunting, etc.
People
Employees are the lifeblood of every successful organization — so it’s only natural that technical due diligence should examine a company’s employees, as well. This category includes:
- Company culture.
- Overall level of technical and industry expertise.
- The existence of internal barriers to collaboration or communication.
- Skill or talent gaps within the company, and whether they can feasibly be addressed.
- Internal training and onboarding practices, including the tools and technology used to support them.
What are the Benefits of Technical Due Diligence?
As mentioned, technical due diligence paints a complete picture of a company’s overall potential as it relates to technology. Given how many modern companies are entirely cloud-based, this means it reveals virtually everything there is to know about a business, whether it’s as a potential partner, an investment, or a target for acquisition.
Technical due diligence is extremely important for smaller organizations, as a full and accurate assessment is often the key to attracting investors and raising capital that helps fuel growth. Beyond that, it allows a business to gain a better understanding of its current strengths and weaknesses alongside opportunities for improvement.
Take Control of Your Technical Due Diligence Process
Although software training is only one aspect of technical due diligence, it’s an incredibly important one.
Not only can it encourage your employees to pursue professional excellence, it can also help ensure your company operates in such a way that it’s both technically and strategically sound.
And while CloudShare may not be able to help with the due diligence process itself, we can provide you with environments to test new technology and the training platforms needed to educate your people. Reach out to book a demo today, and we’ll show you what we can do.
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