Tech due diligence typically involves evaluating the technical capabilities, strengths, weaknesses, and risks of a company’s technology infrastructure, systems, software, and hardware.
Ensuring Tech Due Diligence ‘stays in its lane‘
It’s tempting to comment and report on areas outside the scope of the assessment because you typically get to see most, if not all, of a business, its team and its offerings.
Hence, I would add sections typically in other due diligence workstreams in my early reports. Especially sales and marketing. But at the time, an investor pointed out the need to ‘stay in our lane’ due, explaining that technology was relatively tangible versus sales and marketing.
He also suggested not partnering with firms that provide sales or marketing due diligence as this muddies the water for the investor. Sage advice, as I have come to learn how Private Equity investors operate. By combining practices, we would have made it too difficult for the investors to pinpoint the value we are providing.
I think it comes down to how you package and present the service, as some firms are partnering well together, and the more prominent big-4 players provide many DD workstreams under the same brand. There is a natural affinity between us and commercial due diligence, for example.
8 Future Categories for Tech Due Diligence
However, five years in, I am starting to consider what the future of Tech Due Diligence will be like. So that we can provide more value to private equity investors and prepare the assessment offering for the future.
So here are some unusual topics that could be discussed during a tech due diligence process:
1. Energy efficiency
Tech Due Diligence could evaluate the company’s technology and the supporting infrastructure’s energy consumption and assess whether they have implemented energy-efficient measures. This topic is especially relevant for companies with a significant technology footprint that significantly impacts the environment.
2. Accessibility
Tech Due Diligence could evaluate the company’s technology accessibility and usability for users with disabilities. This topic is often overlooked but is crucial to ensure that the company’s technology is accessible to everyone, regardless of their abilities.
3. Ethical considerations
In addition to compliance and regulatory requirements, it’s essential to consider the ethical implications of a company’s technology solution and infrastructure. This includes evaluating the company’s approach to data privacy, algorithmic bias, and ethical considerations around emerging technologies such as artificial intelligence and automation.
4. Social responsibility
Technology Social responsibility is becoming an increasingly important consideration for companies’ technology infrastructure. Tech Due Diligence could evaluate the company’s approach to social responsibility, including its impact on the environment, community engagement, and corporate social responsibility programs.
This includes examining their sustainability initiatives, community outreach programs, and ethical sourcing policies.
5. Technical innovation
Technical innovation is essential for companies that rely on technology for their competitive advantage. Tech Due Diligence could evaluate the company’s approach to technical innovation, including its research and development activities, investment in emerging technologies, and strategy for staying ahead of industry trends.
This includes assessing their technology roadmap, innovation culture and processes, and intellectual property strategy around innovative technology.
6. Technical culture
Technical culture refers to the company’s approach to technology and its influence on the overall organizational culture. Tech Due Diligence typically evaluates a company’s approach to software development, adoption of agile methodologies, engineering practices, and commitment to technical excellence.
But more can be done, for instance, how technology is adopted, promoted and communicated across the firm whilst ensuring a return on investment. This would be especially useful for larger firms and those that want to keep track of their ESG credentials.
7. Technical vendor management
Tech Due Diligence could evaluate the company’s approach to technical vendor management, including vendor selection processes, contract management, and service level agreements.
This includes assessing the value of the vendor relationships, evaluating the risks associated with vendor dependency, and examining the contractual agreements in place.
Whilst this area is assessed more generally today and will form part of the financial plan, a more rigorous and methodical approach would help rate each vendor.
8. Technical workforce diversity and inclusion
Not surprisingly, I mention people.
Diversity and inclusion are essential considerations for technology companies that want to create a culture of innovation and creativity.
Tech Due Diligence can evaluate the company’s approach to technical workforce diversity and inclusion, including its recruitment and retention practices, diversity and inclusion training programs, and commitment to creating a culture of diversity and inclusion.
This includes assessing their diversity metrics, evaluating their approach to bias in technology, and assessing their track record on diversity and inclusion initiatives.
The best thing is we already provide some of this today through our tech team Leadership Coaching practice. We use Kolbe psychometrics and CTO experience to help firms create more productive technology teams.
Future-proofing Tech Due Diligence
By exploring these unusual categories, investors, acquirers, and other stakeholders can gain a more in-depth understanding of a company’s technology infrastructure and potential impact on the business.
Diversity needs to be assessed during Tech Due Diligence
