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Preparing for a Tech Due Diligence Assessment: A Guide for high-growth tech companies


Having worked closely with numerous high-growth tech companies, I have seen the intense mix of excitement and challenges of finalising M&A deals. These pivotal moments are critical opportunities for tech companies to demonstrate innovation and resilience. For a tech company, years of developing advanced solutions culminate in this period, where every achievement is scrutinised, and every weakness is exposed. It's not just a daunting time—it's a pivotal phase where a tech company’s technological readiness can significantly influence the outcome of potential deals.



What is Tech Due Diligence?

Tech due diligence is an in-depth evaluation of your company’s technology stack, infrastructure, processes and team. The goal is to assess the technical health and identify any potential risks. Private Equity companies, investors and acquirers use a Technology Due Diligence assessment to make informed decisions and ensure their investments are strong.

The last few blogs have focused on how Private Equity companies can increase their investment potential and reduce risk. Now, let’s switch perspectives and consider the viewpoint of a high-growth tech company.


As part of your own internal-readiness you’ll conduct your own internal audits and due-diligence. It's crucial to ensure that your checks align with those of the private equity firm or investors to facilitate a smooth and efficient process. You may opt to engage a third party to conduct your internal TDD. If you do, it’s important to ensure that they have the necessary experience and domain knowledge to thoroughly scrutinise your systems and identify any red flags, so you can address them before they become issues during the deal finalisation process.


Key areas to cover as part of your internal readiness.


Technology Stack Analysis

A Technology Stack Analysis evaluates the software architecture, platform and infrastructure.  It checks for compatibility, scalability, and maintainability.


Evaluation of


  • Software and hardware components, databases, and third-party services

  • Design and quality of the software architecture

  • Infrastructure and technological adaptability

  • Scalability, maintainability, and potential opportunities and risks associated with the technology

 

Intellectual Property (IP)

A thorough IP analysis helps investors understand the value and legal standing of the company's technology assets.


Evaluation of:


  • Technology ownership

  • Patent strength

  • Competitive advantage that the IP provides

  • Potential legal risks associated with IP


Security, Data Privacy & Compliance

This key area involves examining the company's measures to protect against cyber threats, ensure data privacy and comply with relevant regulations.

Evaluation of:


  • Regulatory compliance i.e. Privacy Act, GDPR, and PCI DSS.

  • Current security posture across the stack

  • Security practices to discover strengths, vulnerabilities and gaps.


Technical Team and Processes

Here the Team will be reviewed – its structure, the expertise available and capability to support the company's technology roadmap


Evaluation of:


  • The tech team's skills and qualifications

  • Team practices and processes i.e. Agile, DevSecOps, CI/CD, Security and QA

  • Employee retention

  • Team culture, its capacity for innovation and productivity, and alignment with growth and innovation objectives.


Market Position and Fit

Your company's competitive landscape and growth potential will be examined.

Evaluation of:


  • The technology’s ability to meet market demand and stay competitive

  • Viable growth trajectory

  • Technical competitive advantage and USP


Financial Position & TCO

The financial health of technology operations will be assessed to understand its viability and long-term sustainability.


Evaluation of:


  • Total Cost of Ownership (TCO) – costs associated with the technology purchase, implementation and maintenance.

  • Cost implications for scalability and future upgrades

  • Any financial obligations such as licensing

 

In closing


Aligning with the key areas typically assessed during an external Tech Due Diligence process ensures that your key stakeholders are engaged, your necessary documentation is ready, and you have had time to address any technical and process gaps. This preparation will reduce stress and help the process run smoothly.

 


Download our checklist to review the key questions we ask during a company assessment.



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