How to Conduct a Relevant Due Diligence of a Tech Company when you are not a CTO?
I have been an executive in the tech start-up space for over 15 years. I am also an investor in over 25 start-ups that all rely on technology and platforms. I have learned over the years that a bad tech platform or dysfunctional team can kill a high growth business really quickly. It can paralyze a company when the market moves faster and faster.
The variance in tech performance and productivity across companies is radical.
How many times have we seen large cash injection in tech teams result in abysmal delivery in high growth series Cs companies?
Being good at tech is about a lot more than good code. Here are some of the key questions that can help non-techies (which is pretty much any investor) deal with the technical due diligence on potential investments or M&A. They are my 6 show stopper questions. Clearly the relevance of them depends on the stage of the company you are investing in. These questions are most relevant for companies post-Series A. However, even from inception a good tech team is thinking about these 6 issues.
Does the technology team have a common vision and approach to the technology roadmap? Can the team present the technology roadmap to you?
I recommend interviewing at least 3 people in the tech team during the due diligence: the CTO, the Dev ops lead or technical architect and a lead developer.
All 3 should individually present the vision and roadmap of the next 6-12 months. The messages should be consistent. Ask about the architectural principals, the choice of coding languages, the approach to open source, the key milestones and how they track progress, their approach to development and deployment.
Show Stopper 1: If there is no written roadmap or architecture, the technology plan is bound to fail. Don’t Invest!
Show Stopper 2: If the 3 interviews result in very different answers, this is a dysfunctional team. Don’t Invest!
Do the Business and Tech teams share common documented specifications? DO they work together on the start of new projects and features?
Show Stopper 1: If there are not written and detailed specifications across the business, the tech team is destined to fail even if they are awesome coders. Don’t Invest!
What is the deployment process like? Is there a staging environment? What are the roll back options? Can small elements of the code be deployed or must the entire platform be redeployed each time a new feature is developed?
Show Stopper 1: If the company does not have a clear documented deployment process with a secure staging environment, don’t invest!
Show Stopper 2: If the company does not have a component approach to their platform but instead have a single unique mega platform, the platform wont be agile. Don’t invest!
Can the platform easily integrate components from third parties? Does it have simple API’s?
Show Stopper 1: If there are not simple documented API’s, this technology team will not be able to work with third parties or outsource work. Don’t invest!
How do the teams test their code, the platform, the ability to scale, latency, data integrity?
Show Stopper 1: If there aren’t clear test plans beyond basic code tests, Don’t invest!
How do the tech team monitor the platform?
Show Stopper 1: If there is not monitoring of the systems, there will be massive downtime, Don’t Invest!
I hope this list helps all non-techy investors be comfortable to positively challenge a tech team for a future investment.