A Technical Due Diligence Guide for Investing in Software Teams

Governance and Ownership

A strong governance framework ensures that the tech teams are well-structured, aligned with business objectives, and equipped to handle growth and change. It also fosters accountability and clarity regarding who owns key processes, products, and intellectual property.

Organizational Structure and Responsibilities: Ensure that team roles are clearly defined. Key stakeholders such as developers, product managers, and security leads should have well-established responsibilities, and their work should align with overall company objectives.

Outsourcing and Contractor Engagement: Analyze the use of external resources, such as contractors or outsourced teams. Are these resources fully integrated into the organizational workflow, and do they deliver consistent value?

Workforce Stability and Satisfaction: High turnover can disrupt projects and lead to knowledge loss. Regularly assess team satisfaction and retention strategies, such as career growth opportunities and training initiatives.

Technology Leadership and Ownership: Clarify who holds ownership over technology products and intellectual property (IP). Mismanagement in these areas can lead to operational inefficiencies and legal challenges down the line.

Security

In today’s digital landscape, security is paramount. Proactively assessing and reinforcing the organization’s security measures ensures that sensitive information is protected, both for the company and its users.

Vulnerability and Threat Management: Implement and regularly review processes for identifying, assessing, and mitigating vulnerabilities. Comprehensive security testing, such as SAST (Static Application Security Testing) and DAST (Dynamic Application Security Testing), is essential for preempting security risks.

Dependencies Security: Periodically revisit the Software Composition Analysis (SCA) and make sure all used dependencies are up-to-date and risk-free, make sure any new dependency is promptly added to the list of used tools through a tool like SBOM

Security Architecture and Access Controls: Review the robustness of the systems, including encryption protocols and access control mechanisms. Ensure that data is protected both at rest and in-transit, and that strict authentication processes like Multi-Factor Authentication (MFA) are in place for critical systems.

Incident Response and Recovery Plans: In the event of a breach or security incident, the response must be swift and effective. Regularly test incident response procedures to minimize potential damages and downtime.

Data Protection and Privacy Compliance: Ensure that the data handling practices comply with privacy regulations like GDPR. This includes maintaining a clear data retention policy and assigning data protection officers to oversee compliance efforts.

Legal Compliance

Legal due diligence is crucial for avoiding compliance risks, safeguarding intellectual property, and ensuring that the business meets regulatory standards. This area is especially important when working with external partners or third-party software.

IP Ownership and License Management: Review the status of all intellectual property related to the products. For companies using open-source software, ensure that licenses are properly managed and compliant with legal requirements, avoiding the risk of future legal action.

Contractual Obligations and Vendor Agreements: Analyze the contracts with third-party vendors and service providers. Ensure that these agreements are well-documented and that the legal team monitors for any potential liabilities.

Regulatory Certifications: Stay up-to-date with required certifications and industry standards such as ISO, SOC, GDPR, HIPAA, and PCI-DSS. Regular audits and compliance checks are key to maintaining a positive legal standing.

Documentation and Legal Preparedness: Ensure that all critical legal documentation—such as contracts, API documentation, compliance reports, and software licenses—is up-to-date and readily accessible. This supports ongoing legal and audit processes.

Scalability

Scalability is key to ensuring products, infrastructure, and teams can grow efficiently without performance degradation. Proper scalability planning can help the organization adapt to increasing demand, expand to new markets, and maintain a competitive edge.

Product Scalability: As the product grows, it’s essential to support international markets through internationalization (i18n) and localization (l10n) strategies. Review the product’s ability to handle multi-language content, regional settings, and multi-currency features, ensuring a smooth user experience across different markets.

Infrastructure Scalability: Assess whether the infrastructure can scale efficiently as demand grows. Perform regular load and performance testing to identify potential bottlenecks. Scalable infrastructure should be flexible and robust, ensuring that additional resources can be added seamlessly during peak times without compromising performance.

Team Scalability: Consider how the team structure can evolve to support growth. Are the current workflows and collaboration tools scalable? Can the onboarding processes handle rapid team expansion, and are the training programs equipped to maintain consistency and quality as the team grows?

Code Scalability: Review the codebase for scalability, ensuring it can support future growth without becoming unmanageable. Evaluate the level of technical debt in the code and address any architectural bottlenecks that could hinder future development. This may include refactoring critical sections of the codebase to improve maintainability and performance.

Risk Management

Effective risk management involves identifying, assessing, and mitigating risks across various aspects of the business, from operational risks to technology-related vulnerabilities.

Technology Obsolescence and Scalability Risks: Evaluate whether the current technology stack is future-proof. Outdated infrastructure and applications may hinder scalability and innovation, while technical debt can accumulate quickly and become a significant obstacle.

Security, Operational & Vendor Risks: High reliance on key individuals, third-party vendors, or specific technologies can introduce significant risks. Ensure that contingency plans are in place for vendor or personnel changes, and that the team has a solid knowledge-sharing culture to reduce reliance on any one individual.

Disaster Recovery and Business Continuity: Robust disaster recovery and business continuity plans are essential for ensuring operational resilience. These plans should be regularly tested and updated to account for new risks, including natural disasters, cyberattacks, and supply chain disruptions.

Financial Risks and Resource Allocation: Poor resource management can lead to overspending and inefficiencies. Regularly review the financial performance of the technology investments and ensure that spending aligns with long-term business goals.

Conclusion

By focusing on these core areas—Governance and Ownership, Security, Legal Compliance, and Risk Management—you can develop a comprehensive understanding of the organization’s technology landscape. Regular evaluations will not only help to identify and mitigate risks but also uncover opportunities for growth and improvement. Maintaining a well-governed, secure, and compliant technology environment is critical to sustaining competitive advantage in today’s business landscape.