Technology due diligence is vital for your business. Being a costly business venture, it is still a must-have, regardless of the net worth of the business.
Tech Due Diligence for Startups
Technology due diligence is a vital, yet costly business venture. It’s a need, regardless of the net worth of the business. This view makes the process of evaluating and analyzing the structure in an institution expensive and tedious. As tedious as it is, there is a need to conduct it since most investors will expect it. As the first document during your business discussions.
For your product to attract investors willing to take the plunge into it, they need to understand it’s core. These are defined by the infrastructure, workflow, and the legal status of your intellectual property.
Is there a way to bypass this need if you are unaware of the product’s technical state? Both investors and entrepreneurs will benefit. They all need a report of your tech due diligence
What Is Technology Due Diligence?
It’s a process.
A process by which an entrepreneur seeks answers. Answers to various aspects of the technology of a firm before making any investment decisions. These answers are what convince the target audience of the competency of the product. Investors want to know several things about the product or services, but most of all, your net worth. The following is what they look for:
- How competent and credible is the team?
- How accurate are the teams’ claim?
- Is the company in a position of making execution on its current roadmap?
- What are the risks, weaknesses, and strengths of the business model?
- Can your firm deliver its claims?
These and more concerns will help the investor put their front feet forward with confidence. That said, it’s safe to say that tech due diligence is a must-have item for any firm.
To conduct it due diligence is not a one-off task. You need to have tools and teams that work to ensure all the objectives of the analysis are met.
It is also important to conduct it in the early stages of your business. This is because as the product grows, you will be in a position to produce records that map out your journey.
Let us now look at the checklist.
Technology Due Diligence Checklist For Startups
A checklist is paramount to ensure that your due diligence report is thorough. It will also serve as a control manual to ensure that you are on records and your report has met the objectives.
It may occur to you that you need to hire professionals that can help you with the process. It’s not an easy venture.
Before the actual process, you will need to identify all the stages of the startup. We can condense them into four as follows.
- Stage #1 – Seeding Stage
Seeding is a fundamental level of your startup. It occurs after the product/service actualization has taken place. It entails try-outs in the market and investors can then gauge its performance.
- Stage #2 – Series A
At this stage, your startup needs to be working as intended. Also, providing solutions to the problems it had intended to solve.
- Stage #3 – Series B
At this stage, the product is well established, and now the market is booming. Here, the product or service is customer-focused, and thus, it’s scaling higher.
- Stage #4 – series C
Established product or service is now visible, and the market base is established. At this stage, you are no longer a start-up; if anything, now your business has control over the niche.
During all these stages, something is happening in the company – its getting noticed. What does that mean? Your company is expanding, and the probability of looking for investors is high. More so, they will come to you.
That’s the more reason you need a review of the standings of the business. This checklist can help you convince investors that your business is worth investments.
- Infrastructure and Architecture
Do you know what the current infrastructure state is? Have the team ever thought of the place where the application is hosted? Does it sit on some cloud providers? Have they ever thought about security?
These are the questions you need answers to whenever investors come calling. They will need answers to the state of the products’ infrastructure.
A due diligence report is incomplete without legal documents. Thus, you need to file all the legal documents.
- Ownership of The Code
There is a maintainable code and scalable code. The maintainability of the code refers to low complexity code. For instance, something that other developers can develop fast. In case the code is not maintainable, modifying it will not be easy. It means there is a very high risk or starting a chain reaction of breakages.
As such, you need to know the source codes for your program such that development and code tweaking is easy. This is because some investors will need to know if the code of your application can be changed if need be.
That is why it’s encouraged to hire developers who do not rely on open source codes and software. Instead, get experts who develop products from scratch.
- Organizational Structure Of Your Team
It is paramount to have a reliable team of professionals that run your startup. This is because the right team will propel the agenda of the company forward, and ensure that you meet the aim.
Someone looking to buy equity in your business will need to understand who are. The personnel behind the idea, their legal records and other aspects of their life. They will also need to know the relationship of the team behind the product and service you are offering.
- Intellectual Property State
Intellectual property refers to intangible products as a reason for human knowledge. Software is a great example. Most technological startups are intellectual products. For you to claim a product or service, you need legal documents that certify the ownership.
Smart entrepreneurs will ask for documentation certifying your ideas’ originality, and operational permit. This is what forms the patent and copyrights for the startup.
In your tech due diligence report, you will need to include all the legal and updated documents that support your property ownership.
- Scalability Of The Business
No one wants to put their money in a business that has no track record showing growth projections. As an entrepreneur, you need to make sure that the startup is in a position to grow under any circumstances.
Some investors understand the various stages of a startup are always not promising. Besides that, the startup needs to have space in the market. Investors will use your scalability projections to calculate the ROI for their investment.
- Business Tech Model
Is your product able to deliver its promises? Are you in a position to sustain hardship? Who is the primary audience profile? Do you care for your customers?
All these questions arise when you think of a business model.
A business strategy can help you summarize the aspects classifying your business model. When you have a defined business model, it becomes easy to execute your agenda. Henceforth, easy to integrate other services like subsidiary outlets and the likes.
Serious investors look for a suitable business model is risk-covered.
Why Is Tech Due Diligence Important
Regardless of the promises of the startup, it’s hard to convince keen investors to join without a proper business plan. A due diligence report, coupled with a solid plan, you attract business collaborations.
Apart from that, technology due diligence is essential both for you and for the business as an entity. The following are some of the benefits of having due diligence for your startup.
- It positions you as a serious business. Investors need someone who has a plan and they can work together to get returns on their investment.
- It gives your business credit. The process of due diligence is supposed to debunk all the myths you have about your business. In short, a due diligence report reveals the actual state of the company.
- It helps you plan. As an entrepreneur, you need to be always a mile ahead of your game. More so, you don’t have to create due diligence when investors come calling. This means that having the report beforehand gives you more chances in the face of investors.
- Data security concerns. Forbes published an article on how compromised data of big firms led to losses and mistrust. Without proper records and analysis, your startup is vulnerable. Breaches that could lead to losses — another reason you need due diligence constructed.
Leveraging on Tech Due Diligence
We have already seen the benefits that come with conducting tech due diligence. There is more to that. You have to identify opportunities that come in handy for the success of your investment. Technology due diligence is one of those tools.
With the right data, resources, and understanding of your startups’ framework, you will leverage the benefits outlined above. This shows that tech due diligence is the best tool that you need to put as product security for your startup.
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