No Bad Questions About Business
Definition of Tech due diligence (TDD)
What is tech due diligence?
Tech due diligence, also known as IT due diligence or TDD, is a thorough examination of a company's technology infrastructure, products, and processes. It's like taking a car to the mechanic before you buy it but for the digital world.
Typically, investors initiate TDD as part of their evaluation process, but also companies can also proactively commission a TDD before seeking funding. This self-assessment helps identify areas for improvement and strengthens their investment pitch.
When you need technical due diligence?
Tech due diligence is a valuable tool at various stages of a company's life cycle, especially during critical decision-making points. Here are some common scenarios:
Startup growth:
- Funding rounds — Before investors commit funds, they often leverage TDD to assess the technical viability and risks associated with a startup's product or service.
- Partnerships — Companies forming partnerships can benefit from TDD to ensure technological compatibility and identify potential integration challenges.
Major transactions:
- Mergers & acquisitions (M&A) — Understanding the target company's technology infrastructure is crucial before an acquisition. TDD helps uncover potential risks and ensure a smooth integration process.
- Initial public offerings (IPOs) — Companies preparing for an IPO may undergo TDD to strengthen their overall risk assessment and investor confidence.
What are the stages of technical due diligence?
TDD is a multistep process that thoroughly examines a company's technological foundation. Common steps include:
- Code review: Experts analyze the codebase for quality, maintainability, and potential security issues.
- Documentation review: Technical documents like system architecture diagrams are examined to understand the technology stack.
- Security assessment: Vulnerability scans and security practices are evaluated to assess the company's cybersecurity posture.
- Infrastructure review: Hardware, software, and network configuration are examined for performance, scalability, and overall health.
- Team interviews: Discussions with the technical team delve into development processes, future plans, and potential challenges.
Key Takeaways
- Tech due diligence, or TDD, involves a meticulous evaluation of a company's technology infrastructure, products, and operational procedures.
- TTD process proves invaluable at pivotal stages of a company's lifecycle, including funding rounds, where it validates technical feasibility and mitigates risks. Additionally, it plays a crucial role in major transactions such as mergers, acquisitions, and IPOs, ensuring comprehensive insights into technological capabilities and risks for informed decision-making and successful integration.
- Technical due diligence proceeds through several stages, encompassing code and documentation reviews, security assessments, infrastructure evaluations, and team interviews to provide a comprehensive understanding of a company's technical foundation and future prospects.
