How can you conduct technical due diligence with confidence?

Conducting technical due diligence with confidence starts with a deep understanding of the problem a startup aims to solve and the efficacy of its solution. This requires assessing the problem's market relevance and the solution's uniqueness and scalability. It's crucial to evaluate the technology's robustness, intellectual property aspects, and the team's ability to execute and adapt. Understanding these elements ensures that due diligence goes beyond surface-level analysis, allowing investors to make informed decisions based on the startup's potential to address real-world challenges with innovative and viable solutions. For that, we like to leverage subject matter experts with long standing experience in the relevant markets.

Start by gaining a deep understanding of the target company's business model, products, and services. Familiarize yourself with its technology stack, including hardware, software, and any proprietary technology.

First, delve into the 'why and how': Grasp the core problem the company addresses and how their solution truly stands out. Then, get your hands dirty: Code reviews are non-negotiable. Assess code quality, identify dependencies, and sniff out potential technical headaches. Beyond the code, meet the architects: The team behind the tech is critical. Interview them, gauging their skills, experience, and most importantly, their passion for the project. Finally, let the numbers speak: User growth, customer engagement, and performance data. Use them to identify traction, potential challenges, and the team's ability to tackle them. Remember, metrics don't lie, and confidence arises from hard facts.

If you are dealing with custom built software products then use automated software intelligence tools to uncover risks in the underlying code and the application architecture.

Conduct a thorough review of the company's source code and system architecture. Assess the quality of the code, adherence to best practices, and the overall scalability and maintainability of the technology.

Conducting technical due diligence with confidence requires a comprehensive and structured approach. It involves a thorough examination of the technical aspects of a company or asset, including technology, intellectual property, product development, manufacturing, and IT systems. Remember! this is not "one size fits all" type of engagement and hence each engagement requires careful customization and prioritization.

Furthermore we need to consider the covenants, dependencies, and underlying contracts with developers. How fruitful these are and their compliances.

One of the best ways to vet the technical team is to talk to someone at every level, from the CTO, to developer, and all the way down to the quality assurance (QA) person. The CTO can explain the tech stack, reasoning behind it and how it ties to the business strategy. The developer can explain how they implement sprints or where there’s issues in coding. The QA person interview is often pure gold! This person can tell you all the problems (which the other 2 will almost never tell you). They can also tell you more about the leadership style of the CTO than almost anyone, which is an added benefit in vetting the team.

Build a team of technical experts with the necessary skills and expertise to assess the target company's technology. This team may include software engineers, data scientists, cybersecurity specialists, and other relevant professionals.

Conducting technical due diligence involves obvious tasks like evaluating the industry landscape, comparing the prospective investment against current technologies. But also overlooked topics for startups like scrutinizing its historical execution, even if the company is a few weeks on months old, as it is often a good predictor of future execution skills. Additionally, tech involves people working together: a thorough assessment of the technology roadmap, choices, and organizational fitness is crucial to gauging scalability, mitigating risks, and optimizing for sustained growth.

Evaluate the scalability of the technology to handle future growth. Assess the performance of the systems under various conditions, ensuring that they meet the company's current and future needs.

Assess the company's cybersecurity measures and data privacy practices. Identify potential vulnerabilities and ensure compliance with relevant regulations. Evaluate how the company handles user data and any associated risks.

Develop a plan for post-investment technical support and collaboration. Identify how your team can assist the company in addressing any technical challenges and leveraging opportunities for growth.