In practice, a thorough technical assessment spans multiple domains of a company’s technology and processes. We can think of it as five foundational pillars that support a complete understanding of a technology-driven business. Covering each of these pillars ensures that an investor or acquirer gets a 360-degree view of the target’s technical health. These five pillars are: 1) Regulatory Compliance, 2) System Reliability& Safety, 3) Cybersecurity & Data Protection, 4) Scalability &Architecture, and 5) Engineering Maturity & Practices. Let’s explore each pillar and why it’s critical in a technical due diligence engagement.
Regulatory compliance is the first pillar, because no matter how innovative a product is, it must meet the law and industry standards. A technical due diligence examines the target’s alignment with all relevant regulations and certifications for its market. This could include data protection laws (like GDPR in Europe or HIPAA in healthcare),product safety and electromagnetic compliance standards (CE markings in Europe, FCC in the US, etc.), industry-specific certifications (ISO 27001 for information security, FDA regulations for medical devices, and so on). The due diligence team will review documentation, processes, and controls the company has in place to ensure compliance. Are there processes for quality assurance and regulatory reporting? Have necessary certifications been obtained, or are there gaps?
The second pillar is system reliability and, where applicable, safety. This area of diligence focuses on how robust and dependable the technology is when operating in real-world conditions. The due diligence team evaluates the uptime and stability of systems, their fault-tolerance and redundancy, disaster recovery plans, and any safety-critical elements. For software, this might involve reviewing architecture for single points of failure, looking at historical uptime statistics, or assessing how the system handles peak loads and failures. For hardware or devices, it means examining things like fail-safes (does a medical device safely shut down if something goes wrong?), mean time between failures, and testing processes for physical durability or safety compliance. If the product is deployed in mission-critical environments (like healthcare, automotive, aerospace), this pillar is especially important – it overlaps with compliance on safety standards and requires deep dives into how the system behaves under stress or failure scenarios.
The third pillar is cybersecurity and data protection, an area that has become absolutely central to due diligence in recent years. This part of the assessment examines the target’s security posture: how well it protects against breaches, safeguards data, and prepares for cyber incidents. The due diligence team will look at multiple facets of security, including: access controls (who can get into systems and data, and how is that managed?),authentication mechanisms (are they using strong passwords, multi-factor authentication?), network and application security (firewalls, encryption, secure coding practices), vulnerability management (how do they find and fix security bugs? do they run penetration tests or have up-to-date patching?), and incident response readiness (if a breach happens, is there a plan?). Data protection is closely related – it covers how the company handles personal or sensitive data. Is data encrypted at rest and in transit? Are there policies complying with privacy laws?
The fourth pillar is scalability and architecture. This involves analyzing how well the technology can scale and adapt as the business grows or requirements change, as well as evaluating the elegance and maintainability of the overall design. During due diligence, experts will review the design of both software and hardware systems, the architecture choices, and how those might limit or enable future growth. Key questions include: Can the software handle 10x more users or data volume? Is the system built on modern, scalable cloud infrastructure or stuck on brittle on-premise servers? How modular is the architecture – can new features be added easily? For hardware, can the design be scaled up to larger production volumes? Are components readily available or might supply chain issues hinder scaling? This pillar also looks at integration points and dependencies: does the product rely on third-party services or libraries that might bottleneck scaling or create risk? Additionally, architecture review covers whether the technology stack is current and aligns with industry best practices (e.g., microservices vs. monolith, use of containerization, etc.), and whether there’s good documentation.
The fifth pillar is the maturity of the engineering organization and its practices. Technology doesn’t stand still; it’s created and maintained by people. So due diligence also evaluates how capable and mature the engineering team and processes are. This includes looking at the development workflow (Do they use version control properly? Do they do code reviews? Continuous integration?), the quality of the codebase (Is the code clean and well-documented or is it spaghetti code? What’s the test coverage?), the release process (How often do they deploy, and is it automated or manual? Can they rollback if something goes wrong?), and overall project management (Do they follow agile or any structured methodology? How do they track and fix bugs?). The skills and experience of the team might also be assessed: Are the key engineers experienced in the necessary domains? Is there high turnover or any dependence on a single “hero” developer who carries all the knowledge?
By thoroughly examining all five of these pillars, a technical due diligence provides a comprehensive evaluation of a target company’s technology. These pillars are interrelated – for example, weak engineering practices (pillar 5) often lead to security vulnerabilities (pillar 3) or reliability issues (pillar 2). A broad, five-pillar approach ensures nothing important is missed: no blind spots, no surprises for the prospective acquirer. It gives a clear picture of risks and opportunities. Perhaps the due diligence finds that the product’s technology is strong on four pillars but weak on one (say, great tech and team, but lacking some certifications). That still empowers the buyer to quantify and plan for that specific weakness. On the other hand, if all pillars show green flags, the buyer gains confidence that the technical foundation is sound.