Glossary Background Image

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.

More terms related to Business