Common mistakes in tech due diligence and how to avoid them

When acquiring a new company or investing in a startup, conducting thorough tech due diligence is crucial. This process ensures that the technology assets of the target company are reliable, and secure, and can support the buyer’s strategic goals. However, tech due diligence is complex and requires a deep understanding of technology and business operations. In this article, we will discuss common mistakes made during tech due diligence and how to avoid them.

Mistake #1: Not aligning technology due diligence with business objectives

Tech due diligence should not be conducted in isolation. It is essential to align the technology due diligence process with the buyer’s overall business objectives. This means that the focus should be on evaluating how the technology assets can support the buyer’s strategic goals. Failure to align tech due diligence with business objectives can result in wasted time and resources on irrelevant information.

To avoid this mistake, it is important to clearly define the business objectives and create a checklist of technology assets that need to be evaluated. This checklist should be developed based on the buyer’s specific needs and should focus on areas that are critical to achieving the business objectives.

Mistake #2: Not conducting a comprehensive assessment of cybersecurity risks

Cybersecurity is a critical aspect of tech due diligence. Failure to conduct a comprehensive assessment of cybersecurity risks can result in significant financial and reputational damage to the buyer. Cybersecurity risks should be evaluated at both the infrastructure and application level.

To avoid this mistake, it is important to assess the target company’s cybersecurity policies, procedures, and practices. This assessment should include a review of access controls, data encryption, incident response plans, and vulnerability management. Additionally, it is important to evaluate the target company’s compliance with relevant regulations such as GDPR, CCPA, and HIPAA.

Mistake #3: Not assessing scalability and performance

Scalability and performance are critical factors in evaluating technology assets. Failure to assess scalability and performance can result in the inability to meet future growth requirements and can negatively impact customer experience.

To avoid this mistake, it is important to evaluate the target company’s architecture and infrastructure. This evaluation should include an assessment of the technology stack, database structure, and the ability to scale up or down based on demand. Additionally, it is important to evaluate the performance of critical applications and ensure that they can handle the expected user load.

Mistake #4: Not assessing the intellectual property rights

Intellectual property (IP) is a critical asset of any technology company. Failure to assess the target company’s IP rights can result in significant financial and legal liabilities.

To avoid this mistake, it is important to conduct a comprehensive assessment of the target company’s IP portfolio. This assessment should include a review of patents, trademarks, copyrights, and trade secrets. Additionally, it is important to evaluate any licensing agreements or partnerships that the target company has with third parties.

Mistake #5: Not involving technical experts in the due diligence process

Tech due diligence requires a deep understanding of technology and business operations. Failure to involve technical experts in the due diligence process can result in missed opportunities or potential risks.

To avoid this mistake, it is important to involve technical experts in the due diligence process. These experts should have a deep understanding of the technology assets being evaluated and should be able to provide valuable insights into potential risks and opportunities. Additionally, it is important to involve legal experts to ensure compliance with relevant regulations and laws.

In addition to the aforementioned mistakes, there are other potential pitfalls that buyers should be aware of when conducting tech due diligence. One of the most common mistakes is failing to evaluate the quality of the target company’s code. Poorly written or outdated code can negatively impact performance, scalability, and security, and can lead to costly remediation efforts down the road. Therefore, it is important to evaluate the quality of the code and assess any technical debt that may exist.

Another potential mistake is failing to evaluate the target company’s IT infrastructure. This includes servers, networks, and other hardware that supports the technology assets. It is important to evaluate the age and condition of the infrastructure, as well as any potential risks associated with it. For example, outdated servers or networking equipment may be more susceptible to security vulnerabilities or failure.

Finally, it is important to evaluate the target company’s software development practices. This includes how software is developed, tested, and deployed. In particular, it is important to assess whether the company uses modern development methodologies such as agile or DevOps and whether they have implemented proper testing and quality assurance processes. This can help ensure that the software is of high quality, and can reduce the risk of issues arising after the acquisition or investment.

In conclusion, conducting tech due diligence is a complex process that requires a deep understanding of technology and business operations. By avoiding common mistakes and thoroughly evaluating all aspects of the technology assets, buyers can make more informed decisions and ensure a successful acquisition or investment.