Technology Due Diligence Checklist

Preparation is the key to a successful diligence. It is important to know what to expect and the context of what to explore.

It is important to know what to expect and the context of what to explore. This article focuses primarily on technical due diligence best practices and a checklist.

If you are a tech-enabled company, the technical due diligence will primarily focus on the IT backbone that enables the business along with any in-house software you have built or acquired.

If you are a software company, the depth of the focus will be on the architecture of the software you have built and how it is deployed.

In addition, other key aspects and pivotal points of the diligence assess risks including strategy and leadership which are both critical to the execution and market risks. Anything goes wrong in those areas; the details below won’t matter much.

We all know the consequences of companies that have a weak strategy and the importance of solid leadership which can make or break a company.

The software architecture and IT infrastructure suitability will significantly hinder a potential investment or delay the benefits causing missed opportunities or inability to compete.

Weakness in any of the top three core areas can hinder most investment thesis or require significant investments to mitigate.

Strategy and Roadmap: There must be a healthy strategy in place. As a business, you bring the subject matter experience and the path ahead. The roadmap process and ensures the strategy has legs and can be achieved.
Organization and Leadership: There must be a solid, collaborative and cohesive leadership and aligned organization in place.
Software Architecture and IT: The architecture and IT backbone must align and enable the business strategy. A broken or inadequate architecture or one riddled with technical debt can severely handicap the organization and investment.

Tips for Preparing and Conduction Due Diligence

Technology due diligence checklist

Roadmap & Strategy

The goal is to evaluate the existence of a clear and cohesive strategy and roadmap process across the organization with a healthy SWOT competitive awareness.

The Top Areas to Prepare Checklist

Full SWOT awareness and inclusion in roadmap
Alignment and collaboration with the business roadmap and strategy
Existence, documentation, and propagation of a reasonable roadmap
Roadmap feasibility of execution by the team
Ability to address market needs with clarity on product/service gaps
Product strategy deep dive including how technology evolves
Product management planning mechanics and abilities
Execution discipline and maturity (e.g. backlog epics, backlog health, etc.)

Organization and Leadership

The goal is to explore the technology team setup and health. Understand whether the right skills in the team and leadership are in place to implement the roadmap with cost efficiencies.

The Top Areas to Prepare Checklist

Understand the end-to-end organizational setup and reporting structure
Evaluate the inter-disciplinary and functions balance
Understand the ability to attract and retain talent (e.g. attrition trends)
Understand the level efficiencies in place

Cybersecurity

The goal is to explore security and privacy as a complete layer end-to-end including design, controls, practices, policies, vulnerability detection, mitigation, and implementation.

The Top Areas to Prepare

Policies and procedures
Cyber security tools
Security controls
Security approach (e.g. Zero-tolerance)
Security education in the organization
Third-party assessments and mitigation approach
Inventory including inventory tracking system and ownership
Data privacy and security (e.g. PCI, PHI, PII, GDPR) policies
Data storage and access permissions
Infrastructure security
Monitoring and intrusion detection strategy
Physical security strategy
History of breaches and management
Compliance requirements and domain-specific compliance needs

Software Architecture

The goal is to explore the end-to-end architecture suitability for the current business, fit for the investment thesis, efficiency of design, stability, and ability to evolve and stay competitive.

The Top Areas to Prepare Checklist

Architecture design patterns, robustness, limitations, and roadblocks
Maintainability process for the architecture and codebase
Scalability strategy, limitations, and performance with KPIs
Exploration of the levels of technical debt and management approach
Security design, vulnerabilities, and secure programming principles
Integrations and extensibility of the architecture
Data architecture and management lifecycle (collection, cleansing, etc)
Database, data security including handling of sensitive data, encryption, etc.)
Open-source usage, licensing, and intellectual property ownership
Quality processes and ability to deploy and time to market

IT Infrastructure

The goal is to explore the understanding of the infrastructure deployment model (on-prem, type of cloud) and whether it is adequate for investment thesis and the current/future architecture needs with reasonable costs. For a technology-enabled business, the focus should be on line-of-business tools, cross-data leverage, and Cybersecurity.

The Top Areas to Prepare

Cloud and data centers approach for deployment of physical infrastructure
Infrastructure scalability to accommodate the intended thesis
Infrastructure resilient, reliable with the ability to recover from failure
DevOps maturity, deployment processes/tools, and frequency
Business continuity and disaster recovery plans and testability
Internal line of business applications management and suitability
Compliance standards and audit frequency
Cybersecurity practices and process (e.g. monitoring, intrusion detection, incident response, employee access, fire-walling, intrusion detection, penetration testing, vulnerability scanning)

Product Quality

The goal is to explore the overall product quality in terms of feature offerings, design, UX, bug backlog, and production issues.

The Top Areas to Prepare

Approach to testing and quality assurance
Level of automation, code coverage, and ability to catch bugs upstream
Test case management process and tools
Quality organization health and inclusion in the team
Bug backlog management and feedback into product
Metrics for product health across the software development lifecycle from definition to production

Ways of Working, SDLC, and Tools

The goal is to explore the understanding of the team and engineering practices (PM, Dev, QA) execution capabilities and maturity.

The Top Areas to Prepare

Agility mindset and ability to improve
Ability to stay the course with continuous improvement
Release planning and management process
Sprint planning and management process
Delivery trends across the release cycles
Tool’s ecosystem adequacy and rationalization for productivity
Ability to deliver quality on time to meet the roadmap and investment thesis
KPIs employed across the lifecycle

Customer Support Excellence

The goal is to explore the customer-focus mindset, efficiency of services, product quality hot issues, and competitiveness.

The Top Areas to Prepare

End-to-end customer support process
Defect rates and management process
Escalation rates and management process
Delineating between support and engineering responsibilities
Support tools ecosystem and rationalization
Feedback into the product

Professional Services

The goal is to explore the approach and health of the professional services arm.

The Top Areas to Prepare

Configuration vs customizations mindset
Professional services structure and delivery approach
Utilization efficacy, delivery metrics, hot-product issues
Collaboration with engineering and IT
Feedback mechanism into the product

Corporate IT

The goal is to explore the internal line of business tools, infrastructure suitability, data architecture, and data strategy for suitability to the target.

The Top Areas to Prepare

Line of business tools overview and rationale
Data flow, architecture, and integrations across tools and system
Buy vs Build mindset
Costs efficiency across the tools and systems
Roles and responsibilities for the internal IT team
Business continuity and disaster recovery approach and testability

Carve-Out Situations

The goal is to explore the ability of the organization to function as a stand-alone entity and understanding end-to-end capabilities, intellectual property ownership, and dependencies.

The Top Areas to Prepare

Organizational chart after the split
Roles and responsibilities
Line of business tools dependencies
Security gaps
Hosting and deployment independence
Contractual agreements and IP concerns

Large Portfolio Companies

The goal is to explore the portfolio investment balance across the lifecycle (planning to deployment). Understanding synergy, strategy, planning, and efficiency across the portfolio (e.g. resource sharing).

The Top Areas to Prepare

Ability to scale product planning across different products
Architectural uniformity across products
Level of efficiency for code leverage and reusable components strategy
Prioritized team structure and health across products

The most common areas to prepare for tech due diligence

People involved: Target executive team and deal team

Difficulty: Medium

Materials Needed: Data Room, Strategy and Roadmap Documents, Architecture Documents, IT Documents, Software Development Lifecycle and Working Documents, KPIs, Data Report and Insights.

Time: Spend one day using the list to devise a strategy on the materials gap and what needs to be prepared. The amount of time spent will depend on the specific gap.