7 Things Startups and Investors Must Consider For a Technical Due Diligence [+Checklist]

We all reach a point with our startups where we find investors who have bought into us as cofounders, into our story, and are now keen on investing in us. The due diligence process starts with much anxiety on our side as investors deep dive into the business model, operating model, financial viability and key metrics of our business.

But for many startups, once this validation is completed, comes the more complex and dreaded part — the technical due diligence. There is no fixed formula for how one can prepare for this process. And the amount of due diligence may vary depending on the stage of the startup’s tech platform. Very often, the investors themselves don’t have the in-house expertise to conduct a comprehensive technical due diligence.

“What does one need to prepare (as a startup) / evaluate (as an investor) for a comprehensive Technical DD?”

Based on my past experiences, I’ve put together a check-list of sorts that both startups and investors can use. The entire process should culminate in the creation or delivery of a detailed report which validates the stability of the technology that enables the startup to do what it can do today and wants to do tomorrow, and becomes a formal decision making report for the investors.

1. Technical Architecture assessment

• Assessment of architecture of the entire system (with architecture/network diagrams)
• Assessment of programming languages used, versions, reasons for selection, and maintainability
• Assessment of database schema (for SQL DBs)
• Application and use of all servers, external services and APIs
• Assessment of competitors / competing technologies and why the company’s technology is unique

2. Code Management

• Review of how the system has been built so far — software/ technology development framework
• Assessment of code ownership — inhouse or outsourced. Who within the inhouse team knows what parts/how much of the code?
• Assessment of code development and deployment process
• Assessment of code management, bug tracking, testing methodology, QA processes used
• Dependencies on external libraries (paid/unpaid)
• Assessment of any legacy systems and code that requires replacement
• Assessment of coding best practices used
• Documentation available within the code (esp for new team members)

3. DevOps and System & Data Security

• Review of company’s trademarks, patents, copyrights and domain names
• Assessment of inhouse/cloud services used and dependencies
• Assessment of measures in place to ensure security of systems, code and customer data
• Review of monthly spend on cloud systems and external services (evaluate ROI or cost/developer)

4. Software Integrations and Interoperability

• Review of all other support services (internal and external) used by core system and their interconnectivity
• Review of all non-core technical systems and tools used by team mapped to purpose and productivity
• Integration with CRM and support software and digital marketing stack

5. Preparedness for Scalability

• Review of current volume serviced by systems and platform
• Review of technical metrics/ratios monitored daily/weekly/monthly
• Review of Performance stats of server, system and database
• Review of System uptime statistics
• Assessment of preparedness for scalability of transaction volume / traffic
• Technology roadmap for next 6–12 months

6. Technical skill required matched with skills available in team

• Assessment of technical skills available within team
• Mapping available skills to skills required by system today and tomorrow

7. Product Demo

• Conduct product demo on desktop/laptop/mobile/mobile both from customer perspective as well as operations/administrator perspective
• Assessment of responsiveness of UI/UX across desktop and mobile devices
• Visual assessment (show me!) of code repository setup, tracking systems and code base

I hope you find this list useful and relevant to what you need from a technical due diligence. Do share your comments/suggestions below and I’ll update the list with anything significant that I have missed. And if you need any help with the process, feel free to get in touch with me.