This article provides an in-depth view of the most common areas (85 in total) to prepare for before a technical due diligence. It includes checklists for technical due diligence across 85 different areas and explores the top technical questions to explore.
It’s worth highlighting three pivotal elements - strategy, leadership, and architecture - from the full checklist in this article. Collectively, they ensure a solid base and a great start.
We all know the consequences of companies with a weak strategy or none. We also know the importance of solid leadership, which can make or break a company. The software architecture suitability can significantly hinder an investment or delay the benefit, causing missed opportunities or an inability to compete.
Weakness in any of the top three areas can hinder most investment thesis or require significant investments to mitigate.
Strategy and Roadmap: There has to be a healthy strategy in place. As a business, you bring the subject matter experience and the path ahead. The roadmap process ensures the strategy has legs and can be achieved.
Organization and Leadership: There has to be a solid, collaborative, and cohesive leadership and aligned organization in place.
Software Architecture: The architecture has to align and enable the business strategy. A broken or inadequate architecture or one riddled with technical debt can be severely a handicap to the organization and investment.
Tech Due Diligence Company-Focused Checklist
Below, we have included the most common areas to prepare for in-depth, with the goals and questions to expect and how to prepare for them for technical due diligence.
1. Roadmap & Strategy
Goal: 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 the 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.)
2. Organization & Leadership
Goal: Explore the technology team set up 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 functional balance.
Understand the ability to attract and retain talent (e.g., attrition trends)
Understand the level of efficiencies in place.
3. Software Architecture
Goal: At a high level, this explores 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.
Cloud readiness best practices (great cloud technical due diligence list).
4. IT Infrastructure
Goal: Explores 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.
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.
Security practices and processes (e.g., monitoring, intrusion detection, incident response, employee access, firewalling, intrusion detection, penetration testing, vulnerability scanning).
5. Product Quality
Goal: Explores 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 on product.
Metrics for product health across the software development lifecycle from definition to production.
A combined Product and Technology Strategy assessment is critical in due diligence.
6. Ways of Working, SDLC, and Tools
Goal: Explores 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.
Tools ecosystem adequacy and rationalization for productivity.
Ability to deliver quality on time to meet the roadmap and investment thesis.
KPIs employees across the lifecycle.
7. Customer Support Excellence
Goal: Explores the customer-focused 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 on the product.
8. Security
Goal: Explores 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.
Security controls.
Security approach (e.g., Zero-tolerance).
Third-party assessments and mitigation approach.
Inventory 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.
9. Professional Services
Goal: Explores the approach and health of the professional services arm.
The Top Areas to Prepare
Configuration vs. customization mindset.
Professional services structure and delivery approach.
Utilization efficacy, delivery metrics, hot-product issues.
Collaboration with engineering and IT.
Feedback mechanism into the product.
10. Corporate IT
Goal: Explores 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 systems.
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.
11. Carve-Out Situations
Goal: In those situations, the goal is to explore the ability of the organization to function as a stand-alone entity and understand 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.
12. Large Portfolios
Goal: Explores 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.
It would also be helpful to understand the intention of the diligence as a component of the preparation: Understanding technical due diligence readiness.
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About the Author
Hazem has been in the software and M&A industry for over 26 years. As a managing partner at RingStone, he works with private equity firms globally in an advisory capacity. Before RingStone, Hazem built and managed a global consultancy, coached high-profile executives, and conducted technical due diligence in hundreds of deals and transformation strategies. He spent 18 years at Microsoft in software development, incubations, M&A, and cross-company transformation initiatives. Before Microsoft, Hazem built several businesses with successful exits, namely in e-commerce, software, hospitality, and manufacturing. A multidisciplinary background in computer engineering, biological sciences, and business with a career spanning a global stage in the US, UK, and broadly across Europe, Russia, and Africa. He is a sought-after public speaker and mentor in software, M&A, innovation, and transformations. Contact Hazem at hazem@ringstonetech.com.