What Is Technical Due Diligence?
Technical due diligence is a complex investigation into the quality, risks, and scalability of a target company’s technology assets, processes, and infrastructure. It is frequently necessary in mergers and acquisitions or investments to find out whether the technology stack agrees with business objectives and enables growth.
When assessing companies powered by AI development services, the process examines technical architecture, code quality, compliance, and overall tech readiness.
What Are the Components of Technical Due Diligence?
The technical due diligence process is structured and consists of the following components. Please note that depending on the case specifics and the client’s requirements, this process might include additional steps and examine more details.
- Codebase Review
The quality, security, and maintainability of the code must be carefully explored. - Infrastructure and Scalability Review
Your technical due diligence consultant will examine cloud systems, the configuration of servers, and whether they will scale as your organization grows. - Team Review
Reviewing the technical team’s skill level, structure, and development processes is essential to evaluate their efficiency with the project. - Security and Compliance Check
The reviewers check for specific industry standards, data protection laws, and best practices being followed. - System Performance Testing
The experts handling the due diligence process will need to test the robustness, speed, and reliability of different applications and platforms. - Technical Debt Assessment
This step identifies unresolved issues or inefficiencies that may hinder progress. - AI-Specific Evaluations
In terms of AI assessment, the reviewers will evaluate model accuracy, data pipeline integrity, and scalability of the solution for businesses leveraging AI.
When Do You Need Technical Due Diligence?
There are several scenarios where technical due diligence becomes essential, such as the following:
- Mergers and Acquisitions
Buyers or investors use technical due diligence to understand the true value of the technology and identify potential risks. - Scaling Operations
Businesses preparing to grow need to ensure their tech can handle increased demand. - Securing Funding
Startups seeking investment must show that their technology is robust, compliant, and scalable.
Technical due diligence ensures that AI or Machine Learning systems meet performance and compliance standards for companies using AI. This allows the firm to make better decisions based on insights around strengths and weaknesses regarding investments, partnerships, or scaling strategies.
Who Conducts Technical Due Diligence?
A technical due diligence consultant is a professional who does these evaluations. However, usually, the task will be handled by a team of experts with various specializations. For example, experts in development will evaluate code, while analysts will work on data assessment, etc. These professionals combine technical expertise with industry experience to provide actionable insights into the business.
Another type of categorizing technical due diligence specialists is:
- Specialized Firms
Those companies offering technical due diligence services have dedicated teams to evaluate various technological aspects. - Internal Teams
Sometimes, companies may have internal experts to work together with the assessments. - Independent Experts
An independent technical due diligence consultant provides reviews in areas that might be very specialized, such as AI in sports injury prediction.
These professionals not only evaluate existing technology but also recommend improvements to address identified risks or inefficiencies.
Why Is Technical Due Diligence Important?
Technical due diligence helps businesses make informed, confident decisions. Here’s why it’s so critical:
- Risk Mitigation
It identifies vulnerabilities or inefficiencies before they become costly problems. - Added Value
It showcases the strength of a company’s technology to the investors or buyers. - Competitive Advantage
Ensures that the company’s tech stack coincides with the latest trends in industry standards, especially within emerging topics such as AI. - Assured Compliance
Technical due diligence minimizes the risk of litigation through confirmation of regulatory compliance. For AI technology these compliances now also include the EU AI Act.
Whether an AI-focused startup or an established enterprise, you should understand exactly what technical due diligence is and how it relates to your technology stack. With extensive experience, technical due diligence consultants can help companies mitigate risks, optimize performance, and make strategic decisions that underpin growth.