Technical due diligence.
Technical due diligence is the review a buyer runs on a target company's software, data, security, team, and intellectual property before an acquisition. Its job is to find risks that change the price or the plan: fragile code, one person who holds all the knowledge, unclear IP ownership, or gaps in how the system is built. The findings feed the offer, the 100-day plan, and the deal conditions. A seller can run the same review in reverse to get exit-ready.
01 / What is technical due diligence
It is the pre-deal review of everything technical a buyer is about to inherit, so nothing expensive surfaces after the wire clears.
It goes deeper than a demo. A buyer wants to know whether the software works the way the pitch says, whether the code is maintainable or a liability, who really understands it, and whether the company owns what it claims to own. The output is not a grade. It is a list of findings ranked by cost and likelihood, with each one tied to a dollar impact, a fix, or a condition on the deal. For the full inventory, see what tech due diligence finds.
What it covers
- Software and architecture: whether the code is sound, documented, and maintainable, or held together with duct tape.
- Security and compliance: whether the system is built to a recognized standard, and whether it can pass the audit a customer or insurer will ask for.
- Data and IP: whether the company owns its source code, its models, and its data, with clean licensing and no open questions.
- Team and knowledge: whether critical knowledge is shared, or trapped in one person's head. See key-person risk.
- Roadmap and cost: what it will cost to run and extend this over the next few years.
02 / Why it matters to the price
Technical findings move deal value, and the movement is not small.
In $2M to $20M-revenue deals, technology findings routinely adjust valuations by 3 to 12% of enterprise value (industry benchmark). On a $16M deal, that is a swing of roughly $480,000 to $1,920,000, decided by a review that costs a fraction of it. Roughly a third of lower-middle-market companies carry key-person risk, where critical system knowledge lives in one person's head, and that single finding can reprice a deal or add a retention clause on its own.
| Finding | Without diligence | With diligence |
|---|---|---|
| Fragile, undocumented code | Discovered after close, at your cost. | Priced into the offer or fixed as a condition. |
| One person holds the knowledge | Walks out, and the system goes dark. | Flagged early, with a retention or handover plan. |
| Unclear IP or source ownership | Surfaces in a dispute later. | Resolved before the wire, or escrowed. See source code escrow. |
03 / Who runs it, and how sellers use it in reverse
The buyer commissions it, an independent technical team performs it, and a smart seller runs the same play before going to market.
On the buy side, search funds, holdcos, and independent sponsors bring in an outside team so the read is objective and the findings hold up with lenders and investors. On the sell side, a founder can run diligence on themselves first, fix what a buyer would flag, and walk in with clean answers instead of surprises. Both are the same review, pointed in opposite directions.
- ✓Buyers get a ranked, dollar-tagged list before they commit.
- ✓Sellers fix the flags in advance and protect their valuation.
- ✓Both get a plain-language read, and no wall of jargon.
Book the review on the tech due diligence service, or read what tech due diligence finds before you start. Start a conversation.
04 / Common questions
What is the difference between technical and financial due diligence?
Financial due diligence checks the numbers: revenue quality, margins, and cash. Technical due diligence checks the software those numbers depend on: whether the code is sound, whether the system is built to a recognized standard, whether the company owns its IP, and whether one person holds all the knowledge. Both feed the same offer, but they answer different questions. A clean balance sheet does not tell you the product will still run after the founder leaves.
How much can technical due diligence change a deal price?
In $2M to $20M-revenue deals, technology findings routinely adjust valuations by 3 to 12% of enterprise value. On a typical $16M acquisition, that is a swing of hundreds of thousands to nearly two million dollars, set by a review that costs a small fraction of the deal. The findings can also add conditions, holdbacks, or retention clauses rather than only move the headline number.
Who performs technical due diligence?
The buyer commissions it, and an independent technical team performs it so the read stays objective and holds up with lenders and investors. Search funds, holdcos, and independent sponsors buying durable SMBs are the most common buyers. The reviewer's job is to hand back a ranked, dollar-tagged list of risks in plain language, and not a grade or a wall of jargon.
Can a seller run technical due diligence on their own company?
Yes, and the smart ones do. A founder can run the same review in reverse before going to market, fix what a buyer would flag, and walk in with clean answers instead of surprises. It protects the valuation and shortens the deal. Common fixes include documenting a system that lives in one person's head and confirming clean ownership of source code and models.
What does technical due diligence look at first?
It starts with the highest-cost risks: whether the software is sound and maintainable, whether the company owns its source code and IP, whether the system is built to the standard a customer or insurer will demand, and whether critical knowledge is shared or trapped in one person's head. Roughly a third of lower-middle-market companies carry that last risk, so it is checked early because it can reprice a deal on its own.
Last updated June 2026 · Talk with Felipe
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