Tech Due Diligence

The Anatomy of Tech Due Diligence

Tech Due Diligence Anatomy|

What Is A Tech Due Diligence?

A tech due diligence is an exploration of a potential company (i.e. target) to evaluate their product or service against a specific investment thesis.

The goal of the tech due diligence is to assess risks that can get in the way of the investment thesis and surface potential surprises. 

Ultimately, the assessment would advise the investor on whether the thesis is possible or not. In the cases where it is possible, it would identify important risks and how to mitigate these.

A tech due diligence could have 3 outcomes:

  • Not a great investment based on the thesis

  • Good investment, but risks must be mitigated in value creation

  • Great investment and some optimization opportunities exist

The best tech due diligence would also go above and beyond to explore what opportunities exist to do things better, more efficiently, faster, and with less cost. These would be quantified against value creation levers. This would have a positive effect not only on the outcome of the investment but also on the EBITDA and exit multiples expansion.

 

A great tech due diligence should also be data-driven with quantifiable benchmarks that feed into the value creation cycle for maximum benefits. It should also identify immediate risks as well as potential future risks with an eye for an exit.

Whether the technology is the primary business or the backbone of a tech-enabled company, it has a significant impact on the health of the company, profitability, and the ability to compete. For this reason, every investment and every acquiring company allocates time for tech due diligence as input to their strategy. 

What Is Inside A Tech Due Diligence?

The best tech due diligence takes a pragmatic and strategic 360 holistic approach. The comprehensive view helps with checks and balances and allows for different angles to get a more accurate view. 

There are typically core areas to any tech due diligence such as the business, technology strategy, roadmap, software architecture, code health, team capabilities, deployment setup, infrastructure, security, and leadership.

Non-core areas would be dependent on the situation such as product portfolio for companies that may have a suite of products, professional services for those who deliver implementations, or a deeper dive in artificial intelligence or blockchain for those businesses that have an emergent technology architecture.

The tech due diligence starts by evaluating

the technology and product business

strategy. It then flows to the leadership and

team to determine the capabilities and any

gaps. The next area is the software

architecture, cloud, and code health.

Finally, a holistic look at the IT infrastructure,

ways of working, software development

lifecycle, tools, quality approach, and

product management. Security is horizontal across all areas.

About Tech Due Diligence

Software Technical Due Diligence is sometimes referred to as tech due diligence, technical due diligence, or technology due diligence. However, it is different from IT due diligence which is reserved for companies that are not software companies and are instead more tech-enabled companies.

Top 3 Diligence Areas.png
 
Resources|

  • Free Soundboard Sessions: Chemistry has to work and you and your team must have confidence in our execution. We offer a no-strings-attached session to discuss potential acquisitions and deals at no cost to you. Contact us to book a session

  • Attend RingStone Academy: Our team shares insights and experience about technology best practices, technical due diligence practices, software architecture, cloud, and security topics. Check our webinar events calendar

  • Custom Education Sessions: We offer free sessions to help deal teams and operating partners in Private Equity with technology best practices for technical due diligence execution and what to look for in the early exploration stages. Contact us to discuss availability

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