Technical due diligence

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Investors usually to hire independent specialists to fulfill due diligence. As a result, they get the report describing all possible risks, benefits, expected revenue. While preparing for the tech due diligence, you need to consider all the strong sides of your service or product. Technical due diligence questions also depend on the investment stage of your startups.

Below you can find various investment stages. How to scale a startup? As you can see, there are four main investment phases for startup firms. The tech due diligence and its elements may vary depending on them.

Get ready to describe your technology and provide tech documentation, architectural charts, scalability, and so on. As for infrastructure, you need to explain the constituents of your product like programming languages, databases, or any other technologies. The investors pay a lot of attention to this factor to avoid security issues. According to this model, you can look through the system from various points of view.

The list of required documents can vary according to your business field. Typical documentation looks as follows:. No doubt that code quality is one of the most significant factors for technical due diligence. A badly built system can cause a lot of bugs and malfunctions. During tech due diligence, investors pay attention to the code since poor-written code leads to additional development time and costs.

Challenge : Hire a qualified team of developers that can write high-quality code. But, you need to test not only the back end of your project but also the front-end and data repository. Look through UI and fulfill the regression testing to avoid malfunctions.

Revealed: Which testing approach works better — manual vs. One more point to consider is scalability of your product. For example, you can give information about the test your team has done. There are several aspects that you need to consider in this area. For instance, extensibility. Is your system ready for unexpected growth? Since the security issues are significant, you need to prepare all the documents about the security tests performed. By the way, some automated tools can collect such information and provide reports SoupUI, Apigee.

The team of software developers creates and maintains your product, so they tend to have a significant impact on your business and success. Of course, investors are interested in your team of professionals during the technical due diligence process. You need to give them information about the team members, highlighting team leads, and their responsibilities. You need to keep the organizational chart up to date. You can even have a database with all the contracts of employees and their associated costs.

Additionally, you can prepare a list of your employees and their skills connected to your project development and deployment. Make sure that your software development team consists of engineers, designers, and product managers. To build and maintain an exciting product, you need to have a working system. Investors want to see that these processes are cost-efficient and effective. For example, the information about the schedule, expenses, and team members.

Last but not least is intellectual property. Investors pay a lot of attention to this factor. You need to ensure your future partners that the intellectual property is completely protected. You need to carefully track all the open-source components of your software solution like dependencies, licenses, and more. In this case, you can prevent any legal issues. They can prepare all the required documentation to evaluate and protect the investment.

There are several more reasons to hire a third party to walk you through this process:. To do the tech due diligence properly, you can look through our checklist. There is a list of due diligence questions to start understanding the structure and maintenance of the product. There are questions according to various factors like code quality, scalability, architecture, and more:.

Technical due diligence is a process that usually takes place place before acquisition of the business by another company or round of investment. Due diligence checklist is a list of questions to better understand the structure and maintenance of the product. For example:. Technical due diligence report is a precise report that includes all information about overall property condition, various defects, required maintenance and needed expenses. The main goal of every due diligence process is to close the deal as soon as possible.

But in the real world, technical due diligence can take more than 60 days to finish. Updated 08 Sep Katherine Orekhova Copywriter. Is the code written properly: Are all coding guidelines met? Is the software scalable: Is it prepared for unexpected growth? Technical due diligence can bring various benefits to the startup and the investor: Due diligence lets understand the condition of the product.

Allows to find out future expenses for product improvements. Technical due diligence processes highlight possible risks for both — company and investor. Starting officially Usually, this period begins after all the details and requirements of the tech due diligence process are discussed. Looking through the documentation The company tends to have some technical documentation like architecture, design documents, and more. Scheduling the live meeting The investors prefer personal sessions to find out the inner processes of the startup.

Discussing all the issues The two previous stages typically bring a lot of questions. Making a report The final stage of performing technical due diligence for startups is preparation of the final report. Got lost in due diligence? Our specialists can help you handle tech due diligence. Stage 1. Seed funding. During this stage, you need to release the product to the market. Stage 2. The more documented product information you provide, the more complete due diligence analysts will perform.

So, we got to the internal processes of the startup. To review and explore them, a personal meeting with the developers is scheduled. The team or the person conducting tech due diligence expects positive and productive communication with the project leader. Though, a couple of slides can be helpful when it comes to architecture and integration schemes. The main goal of the tech diligence meeting is to convey to the person who checks all the benefits and business value of the product, explain the logic and awareness behind the passed decisions.

If the person conducting tech due diligence has accumulated questions for you and is ready to share the intermediate results of the assessment, follow-up can be carried out orally, as it has been in our practice. The result of tech due diligence is a detailed report, as objective as possible, compiled by the reviewer based on document screening, meetings with founders, product owner, and tech leader.

Here, all the risks, pros and cons, and prospects are brought together and evaluated. Finally, the report is sent to the investors and the startup team. First, tech due diligence carried out at different investment stages of your startup will be different. The development team must understand this at the start — to write high-quality code and correctly calculate the forces required at each stage of the development.

At this stage of due diligence, your task is to describe the technology as much in detail as possible and provide prepared documentation, whether Architectural descriptions, Product design documents, or APIs documents. Distribute the power of your team wisely.

Instead, developing a quickly-made prototype to test the idea will be more efficient. Moreover, such decisions should not be a point of embarrassment. An experienced vendor understands this and can suggest the right solution.

Despite the choice of architecture, during the technical due diligence process, you should be able to explain the reason for that, whether it is in line with the goals of the product and its future vision. The choice of architecture concept must be justified. Monolithic and microservice architectures are two very different approaches, and there is no right answer. Your choice depends on the project stage and its future goals. The tech due diligence checks it all together. In our practice, a client who had opted for a monolithic architecture surprised the reviewer pleasantly.

It appears that many startups choose a microservice structure because of its high popularity among majors. Instead, with a monolithic architecture, additional services can be implemented through integrations. There are pros and cons everywhere. The high costs associated with immature infrastructure are not what the investors want. Therefore, when choosing an infrastructure, you must consider all operational costs, opportunities, and risks throughout the entire product lifecycle.

As we said, during tech due diligence check, investors pay particular attention to the code quality and the logic of the decisions made, to avoid additional and unforeseen development costs in case the code is poorly written. Writing high-quality code should be done by an experienced team. You need to worry about this in advance to avoid problems such as crutches, large technical debt, or unnecessary costs in the future.

All companies want to grow and expand, but not all of them really foresee this opportunity. Sooner or later, this need will arise, so you need to have both the tech solution and the capacity to expand the team. There is no single right decision. You can build a monolithic one, but you have to have a technical solution in your pocket when you need to reshape it for new product needs.

There is no guarantee that the product will actually grow. Create long-term ideas, not short-term solutions. Ideally, your product will reach maturity and scale. Each person in the team is endowed with a specific role, and the success of your product depends on how well and effectively they perform it. Your task is to convey the goal of the product to the entire team as clear and fully as possible, so that all members understand the logic of decisions and their rationale.

Always try to keep your organizational chart up to date. Keep a database with the resumes of all employees and contractors in an organized manner, as well as with their contracts and associated costs. The expert conducting the due diligence will pay attention to how your operational processes are taking place, including iterations, quality assurance, security testing processes, deployment, codependencies, and other operations.

You should be ready to describe clear workflows with roles and responsibilities for each developer. As much as possible, as often as possible. Maximum security is a must-have for the product. This is how you express your care about the user and respect their needs. Security check should be a mandatory part of the development process. You should take care of the security check well in advance of the tech due diligence.

Investors want a confirmation that your technology is unique. Keep your finger on the pulse. Check the documentation of the patents of your development. During due diligence, be prepared to show that it meets all the requirements. Track the open source components used by your team, including licenses, and source. Consolidate the results.

Based on our experience, as part of a comprehensive technical due diligence, it is necessary to study the following risk areas:. We have collected questions that may interest the due diligence officer in a checklist. Feel free to download it below. Get our Technical Due Diligence Checklist that includes technical questions, questions about the code, and product and culture questions. At first, it seems the technical due diligence process may turn into a true detective for the company.

But in fact, identifying the risks helps your business to work out the weaknesses and all parts of your tech landscape and further improve the development of your product. I agree to receive marketing content from Django Stars. What Is Technical Due Diligence? When is tech due diligence needed? Why carry out technical due diligence?

To do this, they need to: understand the competence of entrepreneurs assess all the kept risks deeply study the technical side of the product and its prospects your hacks come up here, remember them? Who conducts tech due diligence? Technical Due Diligence Process The process may vary depending on the stakeholders involved in it. Regardless of the kind of the check, there are six main stages of tech due diligence: 1.

Preparing This is the initial step, where you if you are a developer of your product or your vendor if you use outsourcing services conduct a code review. Documentation review examination of how fully it is described, its accuracy, and transparency Code verification, integrations, components, solutions Identifying strengths this is where the unique product solutions that you are proud of play well Coverage of weaknesses.

Kick-off call Here we are talking about the business side of the product and discussing further due diligence stages. Documentation screening Few people have a passion for documentation, but it can play a decisive role here. Scheduling and having the live meeting So, we got to the internal processes of the startup.

Report The result of tech due diligence is a detailed report, as objective as possible, compiled by the reviewer based on document screening, meetings with founders, product owner, and tech leader. Key Elements of Technical Due Diligence First, tech due diligence carried out at different investment stages of your startup will be different. The investors will also focus on these points.

During the technical due diligence process, the validity of decisions plays an important role. And the critical goal for founders is to show how deeply they know their product, how carefully they make certain decisions, and how they can defend them. So, different investors carrying out tech due diligence inspect different sides of the product. For example, Superangel pays special attention to team, market, traction, and MVP. Below is a detailed tip and the key elements that a startup should work through, based on our experience of conducting tech due diligence at Django Stars.

Microservice as a goal? Apps — native or not? How is the infrastructure built? Examples of questions to prepare for: Is the stack hirable?