Where there is an investment, there is always a risk. But, this risk can be mitigated by carrying out technology due Diligence during an M&A, i.e., Merger and Acquisition for digital products or agencies.

Well, expecting to get tremendous results of an investment made in haste and without giving it a proper thought is stupid. An investment in a tech company becomes fruitful only when a detailed analysis and in-depth research is carried out.

An interested party signs the LOI and performs technical due diligence on the company they are interested in merging with.

Here is a graphical representation that shows mergers and acquisitions in North America as of May 2021.

Mergers and Acquisitions Statistics North America

Image Source

LOI is the Letter of Intent that is signed between two companies in the preliminary stage. This official document contains the chief terms as agreed between both parties.
It’s also called the agreement to agree.

What is Technology Due Diligence?

Technical due diligence is the analysis process of in-depth investigation of a technical company during an M&A.

Usually, when a buyer plans to invest in a company, tech due diligence helps him or her in understanding the following aspects:

  • the company’s structure
  • internal workflow
  • product’s or software’s competency
  • insights in the process.

To put it differently, this report also helps the seller understand his or her own company’s worth and position.

The evaluation of a company’s tech strategy helps the buyer to understand whether it is worth merging with or acquiring that company or not.

Read More: How To Get Investors For An App?

Why Is It Important for a Tech Company To Carry Out Technology Due Diligence?

Due Diligence for tech companies is not a rule, but it is equally essential. Provided that, we recommend all buying and selling parties to find the best company for TDD procedures.

Following are the reasons you can explore to perform the technical due diligence process on the company you want to acquire or invest your money into.

  • Gauging the company’s expertise level
  • Calculating the possible upcoming risks
  • Exploring & studying the technical condition of the product
  • Testing the amount of work the company can handle at once
  • Judging the efficiency with which the company works
  • Getting an estimate of the expected expenses

Basic Questions in Every Tech Due Diligence Procedure

1. Are the company’s goals and the tech they use in line?
2. What is the current budget and also future estimates for incurring expenses and earnings?
3. What are the existing strengths and weaknesses of the tech company?

What are the Key Aspects of the Technical Due Diligence Process? – Let’s Find Out!

TDD process typically has four steps. Its cycle is long; this means the checking process goes on for a long time.

During M&A, whether you are the buying party or the selling party, you must disclose all the details about you and your organization.

Technical Due Diligence Process

Step #1 – Preps – Emotionally & Physically

In the first place, you cannot prepare for technical due diligence one night before it starts. You and your investor need to share a transparent and trustful relationship to get through the process smoothly. Furthermore, you also need to keep all the documents ready after the authorization from relevant official bodies.

Step #2 – LIVE & In-Person Meetings

Usually, both parties meet and discuss the working of the company before document screening starts. You must, of course, open up about the workflow, hierarchy and structure of the company to maintain transparency.

Step #3 – Doubt Clarification Session

It is but natural that there will be questions popping up in the investor’s mind. It is best to solve all queries and leave no room for loopholes before a final decision is taken.

Step #4: Time for TDD Report!

It is like an exam. After the interrogation comes D-Day, i.e., the result day! After all the conversation and analysis, the investors themselves or their hired expert agency create a report that shows the company’s risks, benefits, and accurate present condition. Based on this list, the investor decides whether to put his or her money into the company or not.

SEE ALSO: How to Start a Tech Company Successfully?

4 Must-Know Stages of Investment – Tech Due Diligence

Whether you are a buying or selling party, working with business brokers is essential to understand the stage of the company before investing in it. For more understanding on this, check the following steps of investment.

stages of investment in tech due diligence

Stage #1 – Seed Funding

The stage already suggests the beginning of the product’s release. Investors carry out due diligence for start-ups and gauge the early response of consumers. Later, they decide whether the technical start-up has the potential or not.

Stage #2 – Series A

Talking about this stage, it has already been a while since the start-up’s establishment. Further development and improvements take place with the money received.

Stage #3 – Series B

In this stage, the company plans to scale up; hence, all the investment funds are put to use in increasing the company’s scope.

Stage #4 – Series C & Beyond

The technology company requires funds to step into foreign markets and start working with other similar start-ups during and after this stage.

IT Infrastructures & Architectures
Monolithic infrastructure in IT means a traditional, simple, and unified structure for software designing. Conversely, Microservice architectures are small independent services that communicate altogether through high-end APIs.

Additionally, there is nothing good or bad about either of the two. But, during the technical due diligence question-answer session, the tech company must defend their choice with apt and valid reasons behind choosing a particular architecture.

Read More: IT Staff Augmentation – An Ideal Way to Grow Your Team

Technical Due Diligence Checklist

If you want the most accurate report analysis for the company you want to invest in, here is a list that the tech company must cross out. Identically, this list applies to all sorts of IT companies for IT Due Diligence, yet if anything specific, you can add those points to the list.

Checklist Technology Due Diligence

NOTE – All the ticked boxes of the tech due diligence checklist state that the process is complete.

Final Words on Technology Due Diligence

For technical due diligence consulting, hire the best tech experts at Excellent Webworld who not only hold the required expertise but have helped multiple clients before.

By and large, a comprehensive tech audit entails whether the investment is worth it and shows if the company will achieve its expected growth. With this in mind, we are here to provide you with information about a tech company. Our experts can give you a green signal for your next significant investment!

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Technology Due Diligence Questions

The procedure duration entirely depends on how large the company is or how widespread its operations are. The bigger the company, the longer it takes to prepare the final technology due diligence. Regardless, the generation of final reports takes 1-3 months.

Yes, correspondingly, AI can help a great deal in boosting the accuracy and efficiency of due diligence reports.

The technical head or the company’s leading manager who performs the technical due diligence prepares the final report after an in-depth analysis. Likewise, he or she is responsible for the reliability of the report.

Here are some benefits of tech due diligence:

  • Identifies potential risks and issues early on
  • Helps to assess the quality and viability of a tech solution or product
  • Provides insight into the technology’s architecture, scalability, and security
  • Offers an opportunity to evaluate the development team’s capabilities and expertise
  • Can help to identify opportunities for improvement and optimization
  • Helps to ensure that the technology aligns with the company’s goals and objectives
  • Provides a foundation for informed decision-making and risk management

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Mayur Panchal

Article By

Mayur Panchal

Mayur is the CTO of Excellent WebWorld and a Web & Mobile App Development Company. He is updated with all the latest trends in the mobile app technology field. He writes blogs which are helpful for businesses to implement technology in the operations. You will find him swimming whenever he is free.