Tech Due Diligence and Support for Business Buyers

Technical due diligence is a process that takes place during business mergers and acquisitions. It involves a comprehensive review, assessment, and verification of all technical details related to the acquisition target’s product, such as architecture, code quality, security, and licensing, so that informed decisions can be taken regarding investments.

For most business buyers, the primary goal of a tech audit is to identify risks and potential costs that could impact the business and consider them when it comes to price. But there is another advantage that sometimes remains pushed to the background. Assuming the deal is being completed with growth in mind, a comprehensive tech audit can provide a good idea about how quickly and smoothly growth can be achieved.

Here are key reasons to conduct technical due diligence before M&A or seed funding:

• Understand the current quality of the product's tech side;
• Assess potential risks and pitfalls;
• Evaluate the product's growth potential;
• Predict future costs of product scaling with more accuracy.

Businesses and startups can also benefit from technical due diligence. It's an invaluable tool for founders, ensuring the original concept stays on track while providing direction toward success.

Technical due diligence is an ever-evolving process whose structure may vary from case to case depending on many factors. Our experience ranges from clients that have already built a product relying on our expertise as a tech partner to third-party consultants hired for code review (identifying strong and weak points of a product). Regardless of the type of cooperation, we split the tech due diligence process into six main stages:

1. Preparation

An initial step includes signing up a letter of intent (LOI) and non-disclosure agreement (NDA) to put confidence at the core of the process.

2. Kick-off call

At this stage, all parties better understand the product: its goals, market niche, and customer value proposition. At a high level, information about the technical side of the product is also provided. Then participants discuss all important aspects of the due diligence process, including timelines, the scope of work, documentation transferring, etc. After laying out these terms, the acquisition target’s team starts preparing documentation for review.

3. Documentation review

At this stage, our team thoroughly examines all the documentation provided. This process includes reviewing the existing architecture, code, integrations, and tech solutions and covers such areas of the project as hiring, onboarding, reliability, and security.

4. Meetings

Once the documentation analysis is complete, our team starts reviewing the technical side of the product in action. This stage usually involves performance testing and conducting interviews with developers.

5. Follow-up

Our experts prepare a document with intermediate assessment results and a list of questions for the business acquirer and the product team. All parties discuss the paper, and feedback is collected and quickly analyzed. Additional review-test iterations are made if necessary.

6. Reporting

The result of tech due diligence is the tech audit report based on document screening, testing, and meetings with stakeholders. The document includes all calculations, risks evaluation, assumptions, and recommendations regarding the quality of the reviewed product.

The tech due diligence report is a document providing investors with an in-depth analysis of the technical side of the product (or the startup as a whole) they will acquire to help them make the right decisions before moving forward with a deal.

A comprehensive due diligence report might include the following sections: 

• Executive summary;
• Methodology explanation;
• Project quality evaluation by criteria;
• Disambiguations - findings and recommendations;
• Relevant documents (if needed);
• Appendices.