Technology due diligence

Assess the real state of technology before investing, acquiring or scaling

10 min

Technology due diligence is a thorough evaluation of a company’s technology assets. It’s typically conducted before an investment, acquisition or merger, but it’s also valuable when a company needs to assess its own technological maturity before a growth cycle.

This guide explains what gets evaluated in a technology due diligence, how the process is structured, what risks it seeks to identify and how to interpret the results to make informed decisions.

What is technology due diligence?

It’s an independent, objective analysis of a company’s technology assets: source code, systems architecture, infrastructure, development processes, technical team and security. Its goal is to identify hidden risks, accumulated technical debt and the technology’s actual capacity to support planned growth.

In an investment or acquisition context, technology due diligence answers critical questions: does the technology really work as the company claims? Can it scale? How much additional investment does it require to deliver the business plan?

Code review and software quality

The code review evaluates quality, maintainability and testability of the software. It’s not about reading every line, but assessing patterns, practices and test coverage in the system’s critical areas.

  • Code quality: coding standards, consistency, cyclomatic complexity
  • Test coverage: unit, integration, end-to-end. The minimum acceptable level is typically 60–70%
  • Technical debt: hacks, workarounds, duplicated code, outdated dependencies
  • Technical documentation: README, API documentation, architecture diagrams
  • Development process: CI/CD, code review, branching strategy, release process

Architecture evaluation

Architecture determines the system’s ability to evolve and scale. A well-designed architecture allows adding features without rewriting the system; a poorly designed one turns every change into a risk.

  • Architectural pattern: monolith, microservices, serverless, hybrid — is it appropriate for the use case?
  • Coupling: are components independent or does every change affect the entire system?
  • Databases: data model, performance, backup and recovery strategy
  • APIs: design, versioning, documentation, authentication
  • Critical third parties: external service dependencies, vendor lock-in risk

Scalability and infrastructure

Scalability is the system’s ability to handle more load without performance degradation. In a due diligence, you assess whether the current infrastructure can support planned growth and how much investment scaling would require.

  • Current infrastructure: cloud vs on-premise, provider, monthly costs
  • Scaling capability: horizontal (more instances) vs vertical (more resources per instance)
  • Performance under load: have stress tests been conducted? What are the bottlenecks?
  • Monitoring: are alerts configured? What’s the average detection and resolution time?
  • Disaster recovery: does a recovery plan exist? Has it been tested?

Security assessment

Security is an area where undiscovered problems can turn into enormous costs: data breaches, GDPR fines, reputation damage. The due diligence evaluates both security practices and concrete vulnerabilities.

  • Access management: roles, permissions, credential rotation, MFA
  • Known vulnerabilities: dependency analysis (Snyk, Dependabot), OWASP Top 10
  • Data protection: encryption in transit and at rest, GDPR compliance
  • Incident history: have there been security breaches? How were they handled?
  • Previous audits: have penetration tests been conducted? When was the last one?

Technical team and processes

Technology is built by people. Evaluating the team is as important as evaluating the code. A strong team can resolve technical debt; a weak team can generate it faster than it solves it.

  • Team composition: roles, experience, tenure, key person risk
  • Turnover ratio: is the team stable or is there high turnover? High turnover is a red flag
  • Development processes: do they use Agile? How do they organise sprints, retrospectives and planning?
  • Hiring capacity: is it easy to hire talent with the current stack?
  • Technical culture: ownership, autonomy, training investment, participation in technical decisions

How to interpret the results

A due diligence doesn’t give a "pass" or "fail" verdict. It produces a report with findings classified by severity (critical, high, medium, low) and prioritised recommendations. Critical findings can be deal-breakers; low-severity ones are recommended improvements.

The key is to quantify the cost of addressing findings and factor that into the valuation. If the due diligence identifies €200,000 in technical debt that needs resolving within 12 months, that should be reflected in the price or the post-acquisition plan.

Key Takeaways

  • Technology due diligence identifies hidden risks in code, architecture, security and team
  • It’s essential before investments, acquisitions or accelerated growth cycles
  • Undiscovered technical debt can turn into unexpected six- or seven-figure costs
  • Evaluating the technical team is as important as evaluating the technology they’ve built
  • Findings should be economically quantified to integrate them into the valuation

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