Technical Due Diligence: Unlocking Value to Deliver Post-Acquisition Success

Technical Due Diligence is a critical step in any technology-driven acquisition, much like a property survey before buying a house. Just as homebuyers check for structural issues before making a purchase, investors and acquiring firms assess a company's technological health to ensure it is secure, scalable, and aligned with business goals. However, it’s not a one-size-fits-all process—its depth and focus vary depending on the investor type, business maturity, and acquisition structure. 

In this article, we’ll break down everything you need to know about Technical Due Diligence, including how to prepare effectively, avoid common pitfalls, the role of AI in streamlining due diligence, and how to set your newly acquired business up for success in the crucial first 100 days post-acquisition.

What is Technical Due Diligence? 

Technical Due Diligence (TDD) is a comprehensive assessment of a company's technology, software, infrastructure, and development processes to evaluate risks, scalability, and alignment with business goals. It helps investors and acquiring firms understand the strengths and weaknesses of a company’s technology stack, ensuring it is secure, maintainable, and capable of supporting future growth. TDD includes reviewing code quality, system architecture, security vulnerabilities, technical debt, and team capabilities to identify potential risks and opportunities for improvement. This process helps investors, buyers, or stakeholders make informed decisions about the feasibility and sustainability of a technology-driven business.

Different Approaches to Technical Due Diligence

Investors approach TDD with distinct objectives based on their investment strategy:

• Angel Investors: Typically conduct lightweight diligence, focusing on potential rather than deep technical assessment.
• Venture Capital (VC): VCs assess whether the technology can be built as promised and supports the start-up’s growth narrative.
• Private Equity (PE): Takes a risk-oriented approach, assessing not only scalability and security, but also the company’s ability to reach its full value potential and deliver on growth hypotheses.
• Corporate M&A: Similar to PE but varies based on the acquiring company's priorities, often involving significant integration planning.

Understanding these differences helps CTOs and technology leaders anticipate investor concerns and prepare accordingly.

When to Start Preparing for TDD?

One of the most common misconceptions about TDD is that it should only be addressed when a company is actively looking to sell. In reality, preparation should be an ongoing process. Given that 54% of all acquisitions now involve private equity, TDD is a reality that senior tech leaders will likely face at some point in their careers.

Companies should proactively adopt best practices, including:

• Establishing strong documentation and licensing management.
• Ensuring infrastructure maturity aligns with business objectives.
• Maintaining regulatory compliance and security best practices.
• Keeping a clear and aligned product, technology, and business roadmap.

By embedding these good habits into daily operations within their technology teams, businesses can be confident that they'll be ready and prepared for TDD when and if that happens, ensuring a smooth and confident transition when the time comes.

What Do Investors Look For?

The primary concerns of investors conducting TDD revolve around risk management, scalability, and alignment with the business’s growth trajectory. Key areas of focus include:

• Risk Factors: What potential risks (cybersecurity, compliance, outdated infrastructure) could impact the company’s success?
• Operational Efficiency: How well-run is the technology function, and does it support business objectives?
• Regulatory Compliance: Does the company adhere to necessary frameworks and industry standards?
• Scalability and Flexibility: Can the technology architecture sustain future growth?
• Obstacles to Growth: What could hinder the company from achieving its strategic goals?

Common Pitfalls in TDD

Many CTOs make the mistake of focusing too heavily on technical brilliance rather than addressing the business risks and commercial impact that concern investors. Some common pitfalls include:

• Overselling technical achievements while failing to address risk and cost implications.
• Over-reliance on AI as a selling point instead of focusing on data quality and infrastructure.
• Weak cybersecurity stance, which is often the biggest red flag for investors.
• Lack of clear licensing and contract documentation, which can cause deals to collapse.

TDD is not about proving that a company has the best technology; it’s about demonstrating that it is well-managed, scalable, and free of significant risks that could derail future growth.

The Role of AI in TDD

AI has become a major talking point in tech investments, but simply integrating AI features is no longer enough to impress investors. The true value lies in data quality and infrastructure. Poorly structured data can significantly increase AI-related costs and operational inefficiencies. Companies must ensure they have a modern data architecture and a clear AI strategy that aligns with their broader business vision.

The First 100 Days Post-Acquisition

TDD does not end when the acquisition is complete. The first 100 days post-acquisition are crucial for addressing red flags identified during diligence. Many deals allocate a budget for remediating key risks, particularly in cybersecurity, but execution is essential. Companies must prioritise and implement necessary improvements quickly to avoid operational disruptions.

Advice for CTOs Preparing for TDD

1. Start preparing at least six months in advance—do not wait for an acquisition announcement.
2. Align technology, product, and business strategies to ensure a cohesive narrative.
3. Ensure strong documentation, compliance, and cybersecurity readiness.
4. Engage with other CTOs who have been through TDD to learn from their experiences.
5. Fight for the right to prepare—advocate for the time and resources needed to ensure a smooth TDD process.

Final Thoughts

By adopting a proactive approach to technical due diligence, companies can increase investor confidence, reduce deal friction, and secure more favourable acquisition outcomes. Whether a company is actively seeking investment or not, embedding TDD best practices into daily operations is an investment in future success.

Planning or preparing for Technical Due Diligence? Find out more about our Technical Due Diligence Assessment here or get in touch today.