Fundraising rounds and mergers and acquisitions (M&A) are complex transactions that inevitably necessitate a stringent due diligence investigation. Depending on the industry of the companies involved, the due diligence process may entail one large investigation that is broad in scope or multiple, separate investigations that focus on discrete topics. In the tech industry, it is becoming increasingly common for companies to submit to technical due diligence.
This usually isn’t quite as involved as the financial aspect of a due diligence investigation, but it is incredibly important when technological systems and capabilities will determine whether the deal can move forward. Here are the main areas that companies need to be prepared to have analyzed closely during this sort of due diligence investigation:
Many successful technology companies develop software and other business solutions that larger enterprises may be interested in funding or purchasing. One of the first things the technical due diligence team will need to examine is the engineering of the particular system, database, or platform. A solution may seem great on the surface, but they are going to need to ensure that there were sound principles utilized to create it. Sloppy or careless engineering can make evolution or growth a bit tricky, and investors or purchasers may not have the patience or resources to fix substantial flaws. For this reason, it is crucial to hire solid software engineers from the very beginning so that there is no need for a bunch of reverse engineering to rectify issues.
In addition to the overall design and capabilities of the system, the programmers’ coding will be subjected to equally intense scrutiny. Ideally, software engineers and programmers will work closely to ensure that the end product is a well-designed, well-constructed system. Just as potential investors or acquirers aren’t going to want to deal with re-engineering, having to fix bugs and errors will not be viewed favorably. Before embarking on technical due diligence, it is a good idea to have a strong team of programmers give the coding a detailed look.
Scaling and Integrating
The scalability of a solution and how well it will be able to adapt to meet the demands of more clients or changing technology will also be under the microscope. And, in the case of prospective purchasers, the ease or difficulty of integrating the solution into the acquiring company’s existing repertoire will be an important consideration. This can be harder for a company to gauge prior to entering into a due diligence investigation. Nonetheless, many of the aspects of the solution’s engineering and coding will impact its potential scalability and integration capabilities, so really focusing on perfecting those components will be key.
Data security has been, currently is, and will continue to be a top priority for companies in virtually every sector of the economy. Hacks are on the rise and sensitive data is being misappropriated and monetized left and right. Thus, a solution’s attention to data security measures, or lack thereof, will also receive a fair amount of scrutiny. These days it seems unlikely for tech companies to overlook something as important as security, but it clearly happens in light of the many breaches making headlines.