What is Due Diligence

Due Diligence is a necessary process for M&A activity, as defined in wikipedia

The examination of a potential target for merger, acquisition, privatization, or similar corporate finance transaction, normally by a buyer.

Due diligence can also be used for an internal review during a strategic planning or budgeting process, or prior to an investment without an acquisition, but most of the time it’s related to an acquisition or merger.
There are some aspects of due diligency, but for a technology company, technology due diligence (or technology audit) is a vital and critical process to determine whether or not the deal should go forward as planned, and find out are there any insurmountable risks.

For a startup company, beside technology detail, it's better to focus at people and their skills, and what they will be able to generate. It’s critical to have a good sense of the strengths, weaknesses and personalities of the company technology staff.

Licensing is an important area to review. There may be a cost involved in transferring key software licenses to a new organization.

Get back to technology aspects, there're some good aspects (or checklists) there should be take a serious look:

  • Development process / engineering culture
    • how serious you write document?
    • process in place for identifying, tracking and correcting product bugs/outage.
    • code review process
    • process for designing product user interfaces.
    • database design process
    • how to evaluate architecture design
    • how engineer collaborate
    • how control technical debt
    • test coverage of current main product
    • how to evaluate good engineer
    • core value in engineering team
    • any proud result?
    • hiring process (are you make them write code)
  • R&D status
  • Open source development status
  • Infrastructure capacity
  • Security considering
    • do you have security audit
    • how to protect user data
    • how product security is considered during product development
    • network security?
  • Data backup/recovery
    • how data backup/restore
    • policy?
  • Internal software license (IDE, OS,...)
  • Demonstration of all products, internal tools and support software, including administrative interfaces.
  • Compliance
  • Intellectual Property
  • Customer support process
  • Quality control