technical due diligence (part 1)

i'm part of a venture related media summit next week, which falls at the tail end of nyc internet week, so i wanted to post something related to both. i’ve been asked many times to put my technology due diligence process online, usually by cto’s who have gone through it w/ me and in hindsight wished they’d have been more prepared for the level of scrutiny that not only my process puts them through but other venture or acquisition entities do as well...

“the goal of this due diligence process is to allow us to fully understand the technology practice of your company, including how you are staffed, your tactical and strategic utilization of technology and the processes that allow them all to work together to produce whatever it is you do for your company. we would like to be able to understand this for both your current state and your roadmap. so where relevant to your business, please be prepared to discuss and ultimately provide written answers to the following scoping questions...”

this is the way I start my investment or acquisition related technology due diligence questionnaire. if you’re a cto, at some point in your career you’re going to be asked to either help judge another company’s technology or be responsible for the technology of your company that someone else will be judging. this could be because of a desired partnership, a merger or acquisition situation or due to venture related funding. For any of these scenarios, the process is commonly called technical due diligence, the preparations required to handle the process can be a useful proactive exercise no matter which side you envision you’ll end up on. frankly at some point in your career odds are you’ll find yourself needing to provide questions and answers in most of the scenarios i listed above, that’s certainly been the case in my career. to optimize the process i’ve created a couple of standardized guidelines that i follow that can be easily distributed to a company under consideration, which normally gets addressed by the other cto. The level of due diligence is different depending on whether its going to be an partnership, investment, acquisition or merger opportunity, thus the need for slightly different approaches. By the way, in today’s market, most investment opportunities could change into an acquisition at any moment so its important to nest the approaches as well. For a partnership or investment you want to determine if the company is making good technology decisions and is “real” (more on this later). For an acquisition you also want to be exposed to every detail of their technology spend, plus identify areas for improvement that could be delivered as they become part a of your company. Finally for a merger it’s all about looking for gaps and redundancies that a combined entity could deliver. The goal of the due diligence process is to allow the interested company to fully understand the technology practice of the company in question, including how they are staffed, their tactical and strategic utilization of technology and the processes that allow them all to work together to produce whatever is done by the company. You would like to be able to understand this for both their current state and their future state called a roadmap. So where relevant to the business in question, be prepared to discuss some specific areas of focus for the technical due diligence: staffing, technology decisions and the processes utilized between the two. The ultimate goal of the due diligence process is to create a comfortable conversation between two technologists so that an understanding of current and future state can be achieved.

in order to keep this overview manageable i've decided to break it up into multiple parts so next post I’ll dig deeper on the specifics…

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