After supporting upwards of 1000 buy-side and sell-side technical due diligence processes, our team at Palo Alto Strategy Group has seen what works and what doesn’t. If your technology company is considering an investment round, here’s our guide to ensure that the technical due diligence process goes as smoothly as possible:
Involve the right people.
Carefully select trustworthy, knowledgeable people from your technology team when deciding who will support the due diligence process. It is essential to provide detailed information to buyers and demonstrate credibility while upholding confidentiality. As a CEO or CTO managing a large team, you might not know details like Java versions or 12-month uptime, but ensuring the right team members are available will allow for clear and competent responses to technical queries.
Prepare the data
Investors will scrutinize a wide array of data points, from finance to technology. When it comes to tech, be ready to share details on your product suite, roadmaps, software architecture, hosting infrastructure, security, machine learning, data analytics, team, and processes. Involve team members (see above) who can efficiently gather any existing information, like exporting data from Jira or finding architecture diagrams, to expedite the process.
Have a plan
Acknowledge imperfections in your product, software, and infrastructure. The due diligence process often uncovers issues like technical debt or security vulnerabilities. Denying these or lacking a remediation plan can be detrimental. Engage in an honest discussion with your sell-side technical due diligence partner to identify issues, potential “quick fixes,” and additional roadmap items, ensuring transparency and preparedness.
Highlight what matters to investors
While technical achievements like testing rigor or low code complexity are commendable, investors may have other priorities that help them understand the cost of enhancing the product or mitigating risk. Stick to the agenda in meetings and only delve into technicalities if they might significantly influence the investment thesis or represent untapped potential.
If you’ve undergone a technology due diligence process, we would love to hear your views on how to be well prepared. If you are gearing your tech company up for an investment process and need help or advice, we would love to chat. If you are a private equity firm looking for experts in technology M&A, feel free to contact us.
