Understanding Technical Due Diligence
Technical due diligence is a critical evaluation process that aims to assess all of the technological aspects of a digital product. It's a comprehensive examination of the software architecture, codebase, security practices, development process, and an overall technical strategy behind the product. The process is usually performed at the critical intersection of the product development process when the management needs to understand the strengths and weaknesses of the tech part of the product before making a decision or any further commitments to partners.
Why Perform Technical Due Diligence?
The main reason behind performing a technical due diligence process is to identify risks and validate the tech fundamentals of a product. This process helps unveil potentially hidden issues that can affect further product development, partnerships, or potential investments. With tech due diligence the management team behind the product can make educated decisions, ensuring that they are not running or further investing in a venture dealing with technical liabilities.
Also, it provides clarity regarding the company's capabilities and readiness for future challenges in terms of technology scaling.
When to Perform Technical Due Diligence?
From our experience, technical due diligence is usually performed during the product's critical phases. Most commonly:
- Assessing the current development team or services: to evaluate if the quality of the tech delivery is up to a certain standard.
- Before investment rounds: to assess the tech behind the product before investors conduct their due diligence to assess the viability of a startup's tech.
- Platform stability: to assess sources of platform stability issues.
- Before major product launches: to ensure that the product is robust and scalable.
- When considering partnerships: to evaluate the technical compatibility between companies and technical ability to support those partnerships.
The Value of Technical Due Diligence
The core value of conducting technical due diligence lies in its ability to de-risk investments. By thoroughly examining the technology stack, code quality, infrastructure and development processes, the management team can identify potential pitfalls before committing to further actions. This proactive approach safeguards investments and enhances strategic planning by providing insights into potential tech improvements and optimizations.
The Process of Technical Due Diligence
At LambdaWorks, our technical due diligence workshop is structured to provide a comprehensive assessment within what is usually five to ten business days. Here’s how the process looks:
Step 1: Initial Call
On the first day, we interview all the key stakeholders to understand:
- the motivation behind the workshop,
- pain points that lead to this call happening,
- and necessary access requirements for assessment.
Step 2: Assessment Starts
Once access is provided, we begin the assessment itself. All subsequent communication is shifted to offline channels.
Step 3: Ongoing Assessment and Reporting
We proceed with the assessment and simultaneously draft the Technical Due Diligence Report until the conclusion of the workshop on the last day.
Our evaluation covers critical aspects such as:
- Codebase evaluation: quality of code, version control systems, coding standards, use of best practices, etc.
- Infrastructure analysis: cloud providers, deployment architecture, infrastructure costs, etc.
- Compliance & security checks: regulatory compliance, data privacy measures, and data security.
- Development processes: deployment pipelines, incident handling procedures.
- Scalability & performance: dynamic scaling, database optimizations, utilizing caching strategies, etc.
Step 4: Presentation of Findings
On last day, we present the report document and take note of any questions stakeholders may have. The report includes 5 major parts:
- background information,
- executive summary,
- analysis focus areas,
- improvement suggestions, and
- Q&A session for clarification on conclusions.
The finalized report serves as a roadmap for stakeholders to understand their current technological situation and areas for improvement.
Conclusion
Technical due diligence is an indispensable part of evaluating any technology-driven company or product. It not only identifies risks but also provides insights that can guide future development strategies. At LambdaWorks, we are committed to delivering thorough assessments that empower our clients to make informed decisions about their technological investments. By understanding and implementing technical due diligence effectively, companies can enhance their operational resilience and position themselves for sustainable growth in an increasingly competitive landscape.