7 Ways Investors Can Gain Clarity When Conducting Technical Due Diligence

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Similar to almost every company these days is a technology company in one way or another. But when it comes to evaluating investment opportunities, few venture and growth investors have the resources to conduct a thorough technical due diligence.

They often refer this important work to an advisor for a more detailed review because technical prudence is often a blind spot for investors. This should not be the case, as the reliability of a product, or lack of it, can lead a company to success or failure.

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Diligence tends to focus on aspects of the product that can be measured. As a result, the focus is often on financials, detailed metrics such as gross margins, sales rep productivity, LTV, CAC, payback periods, and more. While sales and marketing expenses are often the largest operating expenses for a fast-growing business—sometimes over 40% of revenue—R&D expenses can also be significant, typically over 20% of revenue.

However, the assessment of the product and R&D cost base is more of a qualitative assessment based on discussions with management, industry analysts and experts, customers and partners. Investors are not alone in some discomfort about this. Even non-engineered executives are forced to rely on the CTO and product development team to understand code scalability, technical debt, product roadmap cost and time, and more without being able to quantify performance.

Over time, technology should stop being a black box for investors.

Without knowledge of the code or product evolution, we are just scratching the surface, leaving us more vulnerable to technology revisions along the way.

The following seven tips will help you get a clearer picture of the company’s technologies and how best to prioritize initiatives over time so that the product clearly stands out in the market.

Scaling the technical architecture is critical

The initial decision about which technology architecture to use is often underestimated, and few young companies realize the long-term implications.

This is the foundation upon which the code is built and must be aligned with the company’s go-to-market strategy. Lack of upfront planning can lead to costly code rewrites and serious customer issues later on.

Recognize the power of a great developer

I’d rather have one A+ developer than 10 B players. While this is true for many other roles, it’s really important in an engineering organization.




Credit: techcrunch.com /

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