A complete technology due diligence checklist

In today’s rapidly evolving business landscape, conducting thorough due diligence has become paramount for successful investments and acquisitions. To navigate this complex process effectively, a comprehensive technology due diligence checklist is indispensable.

By following the checklist below, investors and organizations can make informed decisions, mitigate risks, and ensure the alignment of technology assets with business objectives.

What is technical due diligence?

Technical due diligence is a comprehensive assessment of a company’s technical aspects. It’s typically conducted during mergers and acquisitions (M&A), investments, partnerships, and other business transactions.

The purpose of technical diligence is to assess the technological capabilities, risks, and opportunities associated with the target entity.

Why is tech due diligence important?

Here are the key reasons to conduct technology due diligence:

1. Risk mitigation. It identifies potential risks and vulnerabilities, enabling decision-makers to take proactive measures.
2. Value assessment. It evaluates technology assets and growth potential, aiding informed investment decisions.
3. Integration planning. It assesses compatibility and integration requirements for seamless technology integration.
4. Compliance. It ensures adherence to regulations and identifies any legal or compliance gaps.
5. Strategic planning. It guides long-term strategies by identifying strengths, weaknesses, and growth opportunities.

Who conducts tech due diligence?

Technical due diligence is conducted by a team of experts with specialized knowledge in various technical domains, including engineers, developers, data specialists, security experts, legal experts, and project managers.

Technical due diligence checklist

Here’s a due diligence technical checklist outlining key areas to consider during the transaction:

1. Business strategy and roadmap
2. Organizational structure and management
3. Software and technology
4. IT infrastructure and systems
5. Product quality
6. Software development lifecycle and business tools
7. Customer care
8. Cybersecurity
9. Portfolio investment balance
10. Spin-off scenarios.

1. Business strategy and roadmap

The goal is to determine if the organization has a clear and cohesive strategy and roadmap in place. This part of the technology due diligence checklist typically includes:

• A healthy SWOT competitive awareness
• Consistency between the business strategy and overall business goals
• Alignment with the business roadmap and strategy
• Product management planning mechanics and abilities
• ‍Execution discipline
• Revenue models and the scalability of monetization strategies
• Thorough competitive landscape understanding

2. Organizational structure and management

The objective is to assess the technology team setup and ensure that the team has the appropriate skills to execute the roadmap efficiently. Here are the steps to follow:

• Study the organizational structure and reporting structure
• Evaluate the balance of interdisciplinary teams and functional areas
• Evaluate communication channels within the organization
• Identify any gaps in skills that may hinder the successful execution of the roadmap
• Assess the effectiveness of recruitment processes and talent development initiatives
• Review employee satisfaction and retention rates

3. Software and technology

The M&A technology due diligence checklist should also include the evaluation of software architecture. This helps determine if it aligns with industry best practices, scalability requirements, and business objectives. Here’s what to check for:

• Quality and maintainability of the software applications and underlying codebase
• Scalability strategy
• Technical debt and management approach
• Security design and secure programming principles
• Integrations
• Data architecture and management lifecycle (collection, storage, usage, distribution, disposal)
• Data security (encryption, access controls, compliance with data privacy regulations)
• Intellectual property ownership
• Error handling

4. IT infrastructure and systems

The aim is to understand the current state, capabilities, and potential risks associated with the IT infrastructure. This section of the due diligence technology checklist includes:

• Evaluation of infrastructure deployment model (on-premises, cloud-based, or hybrid) to determine its suitability for the intended goals
• Assessment of cloud and data centers approach for deploying physical infrastructure in cloud environments and data centers
• Infrastructure’s ability to scale to accommodate the intended thesis
• Infrastructure resilience and reliability to recover from disruptions 
• Deployment processes and their frequency
• Roles and responsibilities for the internal IT team
• Business continuity and disaster recovery approach
• Business applications management (performance, maintenance, and alignment with business needs)
• Tools and processes for monitoring and managing the performance of the IT infrastructure

5. Product quality

This aims to gain insight into the product’s features, design, user experience, and production issues. More specifically, it examines:

• Methodologies and processes for testing and ensuring product quality
• Code coverage
• Ability to detect and address bugs early in the development process
• Test case management process and tools
• Bug backlog management
• Design and user experience of the product (usability, accessibility, and adherence to design best practices)
• Customer feedback loop (how customer feedback is collected, analyzed, and incorporated into product improvements)

6. Software development lifecycle and business tools

The goal is to conduct a business tools overview and assess their effectiveness and suitability. Here’s what this part of the diligence process includes:

• Agile methodologies and commitment to continuous improvement
• Release planning and management process
• Sprint planning and management process
• Delivery trends and performance metrics across multiple release cycles to identify areas for improvement and bottlenecks
• KPIs employed throughout the software development lifecycle, including metrics for productivity, quality, and timeliness of deliverables
• Effectiveness of collaboration and communication tools used within the SDLC
• Quality of document management practices to ensure proper transfer and retention of project-related knowledge

7. Customer care 

This part of the technical due diligence process aims to explore the effectiveness and capabilities of customer support within the organization. This includes:

• Customer-focus mindset and end-to-end customer support process
• Defect rates and management process
• Escalation rates and management process
• Delineating between support and engineering teams and ensuring clear roles and responsibilities
• Evaluation of tools and technologies used in customer support 
• SLAs for customer care, including response times and resolution times
• Availability and effectiveness of support across various channels (phone, email, chat, social media, etc.)

8. Cybersecurity

The aim of cybersecurity due diligence in IT is to identify potential vulnerabilities, risks, and gaps in the organization’s cybersecurity defenses. More precisely:

• Physical security strategy
• History of breaches and management
• Compliance requirements and relevant cybersecurity regulations and industry standards
• Effectiveness of network security measures, such as firewalls, intrusion detection, and prevention systems
• Effectiveness of the organization’s identity and access management practices
• The organization’s security awareness and training programs

9. Portfolio investment balance

The tech due diligence process should also include exploring the portfolio investment balance to understand synergy, strategy, and efficiency across the portfolio. It includes:

• Evaluation of architectural uniformity across products, considering the use of standardized frameworks, technologies, and design principles
• Level of efficiency for code leverage and reusable components strategy
• Team structure and resource allocation strategy across different products
• A healthy strategy, including product roadmaps, market positioning, and differentiation

10. Spin-off scenarios

The goal is to assess various aspects of a specific business unit or division being separated from its parent company. Here’s what to prepare:

• Organizational chart after the split, including reporting lines, management roles, and overall governance structure
• Roles and responsibilities of key personnel within the spin-off entity
• Security gaps or vulnerabilities that may arise as a result of the separation
• Hosting and deployment independence
• Contractual agreements, licensing arrangements, and IP concerns
• Financial systems, reporting capabilities, and compliance with regulatory requirements
• Branding and marketing transition plan

5 tips to prepare for the tech due diligence process

Following a comprehensive due diligence M&A checklist is just one of the elements in ensuring a successful business transaction. Here are other recommendations that you might find helpful:

1. Prepare key personnel. Identify key individuals who will be involved in the due diligence process and ensure they are available and prepared to answer questions or provide clarifications during the due diligence process.
2. Prepare the data room. Set up a secure and well-organized data room to store and share due diligence documents, ensuring easy access and confidentiality for the due diligence team.
3. Seek professional assistance. Engage experienced professionals, such as legal advisors, accountants, and industry experts, who can provide guidance, review documentation, and assist in preparing a comprehensive technical due diligence report.
4. Be transparent and open. Approach the due diligence process with transparency and openness. Be prepared to provide accurate and detailed information, address any concerns, and maintain clear lines of communication throughout the process.
5. Utilize management and assessment tools. Consider implementing relevant management and assessment tools to improve internal processes, streamline workflows, track KPIs, and identify areas for improvement.

Key takeaways

Let’s summarize:

• Technology due diligence is crucial in evaluating the technical aspects of a company during M&A, investments, and other business transactions

• The tech due diligence checklist covers areas such as business strategy, organizational structure, software and technology, IT infrastructure, product quality, software development lifecycle, customer care, cybersecurity, portfolio investment balance, and spin-off scenarios

• The top recommendations for successful due diligence are to seek professional expertise, leverage data rooms, utilize management and assessment tools, and maintain transparency throughout the entire process.