How to Run Technical Due Diligence

It is important for potential investors to gather detailed information about a prospective company to highlight any potential risks associated with their investment.  Technical Due Diligence (TDD) is a detailed evaluation of the company’s technical side, including both existing software and hardware products and those in development.  While the TDD process may seem intimidating to some small business owners initially, it is in fact a routine step.  If efficiently planned and executed, a TDD should be able to answer investor questions in easy-to-understand terms. Whether you are a potential investor, or a startup new to the process, the following article provides an insightful take on how to make the process work. When embarking on the TDD process, investors typically want to know about 4 major areas:

Strategy: Does the company and its product(s) fit within the investor’s overall growth objectives?  Does the company’s own strategy match up with the investors’ strategy?

Quality: Are there quality issues with the company’s product that will require fixing?  If product development or fixes are needed, what are the expected costs?

Growth:  Is the company or its product poised for growth? What roadblocks are there, in terms of labor, manufacturing, infrastructure, and/or development, that would hinder growth?  Can the product be scaled?

Stability:  Are the company founders and their employees in it for the long haul?  Are their processes organized and well-documented? Are there contingency plans and redundancies, in case of an unforeseen event?

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