The due diligence procedure is becoming more and more popular among entrepreneurs. The essence of the procedure is to provide detailed information about the investment object – a company, real estate, or land. So, in this article, we will consider the purpose of the tech due diligence checklist.

Risk factors: what is tech due diligence when choosing a counterparty?

Infrastructure, real estate, industrial and commercial facilities, or even knowledge-based companies are attractive investment objects. A successful business transaction requires an accurate assessment of the future and viability of the target based on a mostly limited information base, as well as knowing the technical and operational risks in advance to be able to mitigate them.

The tech due diligence evaluates the economic value and the future economic opportunities and risks of your target object. You receive a precise assessment of the tangible and intangible assets. Due diligence provides you with well-founded statements in the shortest possible time, based on which you can decide on a transaction. Tech due diligence is focused on the study of production technologies, security, and condition of production equipment, environmental friendliness of production.

This kind of procedure is aimed at studying the following aspects:

  • technical and commercial competitiveness based on international and national benchmarks;
  • the effectiveness and efficiency as well as capacities of the value chain based on the underlying systems and intangible assets (e.g. patents, licenses, processes, competencies).
  • the operational organization, the processes, and the technical management;
  • the requirements of regulations and their effects.

But it’s about more than just a purely technical analysis of the target. As part of tech due diligence, companies also examine business cases and the associated financial models from a technical perspective.

Virtual data room for tech due diligence

Virtual data rooms help to significantly speed up the process of working with documents and get a complete picture of all areas of the company. This software solution ensures the following benefits for organizing tech due diligence:

  • the ability to unload a large amount of electronic documentation;
  • simultaneous work of a group of employees with the document in the “online” mode;
  • creating an online discussion of the document;
  • comparison of different editions of documents;
  • procedures for protecting the information contained in the document;
  • copying and archiving;
  • application of means of individualization (for example, watermarks);
  • the possibility of using an electronic digital signature, etc.

How to write a due diligence report?

After conducting a complete analysis of the information, the team of experts provides an independent report on the results of tech due diligence. It must include a risk assessment for each issue in the list and the rationale for such an assessment.

Based on the results of such a study, if a positive decision is made, an investment offer or memorandum is drawn up, summarizing all the conclusions and formulating a proposal for the investment committee, which adopts the final verdict. As a rule, drawing up a memorandum means almost a final decision, because in the venture business it is customary to trust each other: the investment committee undoubtedly relies on the opinion of the executive director or fund manager, who in turn is fully responsible for his proposal.

Having read the results of the report on the due diligence, it will be easier for the investor or the buyer to decide on the expediency of the transaction, to assess all its advantages and disadvantages.