As a qualified executive coach, I take a keen interest in management team dynamics on behalf of investors. Ultimately, beyond assessing technology, I’m also evaluating how easy (or difficult) it will be to work with the management team post-deal.
When conducting technology due diligence a management team’s reaction to information requests can be telling. The vast majority (99.9%) handle the process professionally, but occasionally, a target company pushes back. As someone paid to be cynical, I always find this curious. Why does resistance emerge?
From experience, one common reason is seasoned founders who have been through tech due diligence before and deliberately push back to control the flow of disclosed information. While this isn’t necessarily a red flag, it does warrant closer scrutiny.
1. CTO in Name, but Not in Responsibility or Decision-Making Power
It’s a warning sign when a CTO is present in boardroom discussions but effectively sidelined. If their opinions don’t matter or they don’t get a chance to contribute, investors might assume they are introverted or disengaged. However, the real issue is often that they are not considered an equal part of the leadership team.
2. CTO Relegated to “the dungeon
In one deal, we discovered that the entire tech team was underpaid. Every time we highlighted areas needing attention or improvement, the CEO assumed the current team could simply absorb the extra workload. The CTO, treated as IT support, was paid significantly less than other executives, signalling a lack of respect for the role.
3. Power-Crazy CEO
A dictatorial leadership style can be a major red flag. In one case, platform performance issues were evident, and historical emails and meeting minutes revealed the CEO ran the company with an authoritarian grip. This stifled innovation and created an environment where dissenting voices were ignored.
4. CTO in Role, IT Support in Pay
The worst example I’ve seen? A company with £7m in revenue and solid profits paying their ‘CTO’ just £45k to manage both product and internal IT. This was not a strategic tech leader but rather an underpaid generalist.
5. Indecision Due to Joint Equity
In one case, a company had five co-founders who had maintained their relationships for over a decade. However, they had each retreated to their own corners with conflicting visions for strategy and technology. This led to paralysis, where no major decisions could be made, significantly hindering progress.
6. Inconsistent Company Pitch
If you spend a few days meeting the management team and receive a completely different version of the company’s story each time, it’s a major red flag. A lack of alignment at the top will only create confusion down the line.
7. Lack of Connection to Company Values
A surprisingly common issue: when asked about company values, leadership teams often fumble. The embarrassed laughter and vague responses suggest that these values exist only on a slide deck, not in day-to-day operations.
8. Outdated Attitude Towards Tech and Cybersecurity
One of the most dangerous signals is the “no one is interested in our data” mindset. Equally problematic is the “if it isn’t broken, don’t fix it” attitude, leading to a legacy of unpatched software and security vulnerabilities.
9. CTO Handling Internal IT and Laptop Builds
This happens far too often. When I see a CTO personally handling laptop setups and internal IT support, it always makes me (and them!) smile—because we both know they shouldn’t be doing it. A CTO should be driving strategy, not troubleshooting hardware.
These Signals Matter during Tech Due Diligence
Assessing a management team holistically—culturally and historically—is critical in determining how they will make future decisions. While technology due diligence focuses on evaluating systems and processes, understanding leadership dynamics is just as crucial in predicting post-deal success.
It’s vital to ask the right quetions to see where the management gaps are, and determine ways to help. You can find our CTO Coaching guide here: The Scale Up CTO.
