Technical due diligence (TDD) involves a third-party analysing a tech product and how it has been constructed in order to identify strengths and weaknesses. It is important for potential technology investors to have someone outside of the company objectively assess the product. This will give a well-rounded overview of exactly what you are investing in. Technical due diligence is beneficial to everyone involved and gives a product the best chance of success. So, let’s have a look at exactly what it involves.
Who Is It Beneficial For?
TDD is highly recommended for people who are potentially investing in technology. If you are going to spend substantial amounts of money investing in a digital product or business, knowing exactly what you are purchasing and the potential risks involved is essential. The cost of TDD is of minor importance compared to the cost of the technology and the potential losses as a result of a lack of professional investigation. You will benefit greatly from TDD as you can ensure that you are investing in a scalable, strong piece of technology. Many companies offer talks so you can gain an insight into other investors’ experiences of purchasing tech and the extent to which TDD was valuable.
What Will Be Looked At?
When a company provides TDD, there are a few key areas that will be assessed. These are usually the team, the processes that have been used to develop the product, the structure of the product, what the actual technology is and also how data is gathered and any potential implications associated with this. Also, the technical risks involved are analysed, along with the mitigation costs related to said risks. Finally, the opportunities for growth are considered as this is an important element for many investors. These are of course all quite broad areas, yet TDD results in a detailed report of all of these areas to give you the information you need to make a measured decision of whether this is an investable product.
Why Not Do A Technical Due Diligence Yourself?
If you have experience in software or tech, it might be tempting to assess the technology yourself. Yet, there are many flaws in doing this. Firstly, using a third-party who has signed a non-disclosure agreement can help to preserve the integrity of the competitive intelligence involved. As well as this, a third-party will offer a much more varied level of expertise and also the element of objectivity which would be hard to maintain as you, the investor, would be so heavily involved. Additionally, having a third-party will ensure fairness in negotiations, as issues with the tech could potentially impact the price or conditions of the deal.
The initial cost of TDD is insignificant compared to the potential costs incurred as a result of issues with the technology which could have been identified prior to the investment. So, overall, technical due diligence is highly advisable if you are hoping to invest in a new tech product!