Whether you’re a technology vendor preparing to raise investment, or you’re an investor looking to validate your target’s technology before finalising the deal, there are a lot of questions and expectations in the air ahead of IT due diligence.
After all, the assessment’s findings can greatly impact a deal’s value, or whether there will be a deal at all.
At Intechnica, we have conducted hundreds of IT Due Diligence assessments on behalf of both vendors and investors. Here are the three most common misconceptions and myths that we come across.
Let’s break them down.
Misconception #1: A best practice standard is expected
As IT due diligence experts, we do not sit in an ivory tower with a stringent checklist of “best practices”. We always tell the business we partner with that there are many ways of building well-performing teams and products. After all, even the most successful businesses aren’t identical.
It’s important to recognise that different businesses’ needs and requirements can vary drastically. Hence, what happens in the technology department should be proportional to those needs.
So, while there are some commonly shared features among high-performing tech teams, there is no one standardised “right” way of doing things. Instead, businesses should focus on making sure that the technology function is in line with the wider business strategy, and that technology decisions are backed by a solid rationale.
Misconception #2: There can be no problems
Some parties embarking on an IT due diligence process believe that the discovery of a problem will be a death sentence to the deal. However, this is a big misconception. In fact, looking back at the hundreds of due diligence assessments that we’ve carried out, we usually identify one or two “amber flags”, which represent issues that can be resolved within practical limits of time and resources.
What matters most is the business’s acknowledgement of their issues, and the plans to resolve them. If a business can demonstrate self-awareness and commit to a well-thought-out plan to overcome the issues flagged in the assessment, it’s highly unlikely they will prevent the deal from going ahead.
Misconception #3: Everything must be documented
The third common misconception around IT due diligence involves the extent of documentation. Many believe that when you undergo an IT due diligence process, you need to have every aspect of the tech function carefully documented. However, many smaller and mid-market businesses rarely have everything written down, and that’s often fine. In fact, mountains of documents can be an issue for a business, often quality can suffer, and important documents can be inaccessible.
Instead, businesses should focus on quality over quantity, and communicate openly with the due diligence partner to provide them with the information that they may need.
Preparation is key for a smooth IT due diligence process
In a nutshell, perfection is not a requirement to “pass” IT due diligence and secure investment. Rather than worrying about perfection, businesses should focus on being aware of their challenges and building a solid plan on how to address them.
Preparation is the best way to avoid surprises and to make the IT Due Diligence process run smoothly. Here are some key points to bear in mind:
- Focus on quality over quantity when it comes to documentation
- Know your biggest risks and prepare plans to mitigate them
- Align documentation and overall preparation against your business strategy
A good diligence partner will also clearly communicate what the process entails and what they need from the business.
At Intechnica, we have assessed hundreds of businesses from start-ups to large and mature organisations for deals of all sizes. Find out more about our Technical Healthcheck, Exit Preparation, and IT Due Diligence services by getting in touch with our team of experts.