Technology Due Diligence: What It Covers (and What Investors Check)

Technology due diligence is an independent assessment of a company's software, infrastructure, security, engineering team, intellectual property and data, carried out before an investment or acquisition. Its job is to test whether the technology can support the business plan the deal is priced on, and to put a cost and a timeline on whatever cannot. Investors use the findings to adjust price and terms and to build the post-close plan.

This article explains what a credible assessment covers, how private equity, venture and strategic buyers each read it, and how findings move from a report into the purchase agreement and the first 100 days. If you are scoping an engagement now, Sphere's technical due diligence practice runs this discipline across six practice areas and delivers findings in four weeks or less.

Technology Due Diligence vs. Technical Due Diligence: Is There a Difference?

No. Technology due diligence, technical due diligence and tech DD describe the same discipline, and investors, advisors and law firms use the terms interchangeably. Some advisors use "technology" to signal a wider scope that includes enterprise systems and IT operations, and "technical" for a code-and-architecture review, but no industry standard sits behind that split. What matters is what the scope letter actually includes.

The more useful distinctions are with the reviews that sit next to it. IT due diligence focuses on the systems a business runs on, such as ERP, CRM, networks and end-user infrastructure, and is the main lens for carve-outs and non-software targets. A code audit is narrower again: a focused review of one codebase that can run with or without a deal attached. Financial, legal and commercial diligence examine the same company, but none of them open the code or test whether the architecture can carry the growth plan.

What Does Technology Due Diligence Cover?

A single checklist cannot see every kind of technology risk, so a good assessment runs several lenses and weights them according to the deal. A SaaS platform acquisition leans on architecture, code and security. A carve-out leans on infrastructure and separation. An AI-first company needs a lens that neither of those requires. The seven areas below make up the scope of most engagements.

Two of these areas deserve more attention than they usually get. Open source is the first. The 2024 Open Source Security and Risk Analysis report from Synopsys (opens in new tab) found high-risk open source vulnerabilities in 74% of the commercial codebases it analyzed, and components ten or more versions out of date in 91% of them. Neither problem is visible in a demo or a management presentation.

Technical debt is the second. CISQ estimated (opens in new tab) the accumulated technical debt in US software at roughly $1.52 trillion in 2022. For a buyer, the national total matters less than the target's own share: which deferred migrations, brittle integrations and aging components will consume engineering capacity that the growth plan has already spent.

Data and AI now appear in almost every scope, because so many targets market AI capability. Testing those claims needs its own method, which we cover in our guide to AI due diligence for investors. Where much of the codebase was written with AI coding tools, the code review changes too; see what diligence on AI-generated code should check.

What Do Investors Check in Technology Due Diligence?

The scope areas are the same for every buyer. The questions each buyer asks of them are not, because each one is paying for something different.

Private equity buyers

A private equity firm is underwriting a value creation plan over a defined hold period, so it reads the technology for cost and capacity. Can the platform absorb add-on acquisitions without a rebuild? What will engineering, hosting and security spend look like at the scale in the model? Is there a key-person dependency that threatens the plan in year one? In carve-outs, separation dominates: which systems, data and people are shared with the parent, and how long transition service agreements will be needed.

Venture and growth investors

Earlier-stage investors accept more debt and less process, but they test whether the architecture and the team can get the company to the next stage without stalling. They look at release velocity, team structure, whether the technical moat is real, and whether the founders understand the limits of their own system. At seed and Series A, the review is lighter and leans more heavily on the team and the architecture's room to grow.

Strategic acquirers

A corporate buyer usually plans to integrate the target, so it asks how hard that will be: stack and cloud compatibility, identity and data migration, overlapping products, and which engineers must stay for the integration to work at all. For a strategic buyer, integration cost and timeline often matter more than code quality in isolation. Our post on M&A technical due diligence walks through that integration lens.

How Do Findings Affect Valuation and the 100-Day Plan?

A finding only matters once it has a cost, a timeline and an owner. A good diligence report prices each issue, then sorts it by what the deal team should do with it. Most findings end up in one of four places:

• Price. Remediation cost the buyer would otherwise absorb is deducted from the offer or reflected in the multiple.
• Terms. Specific representations and warranties, indemnities, escrow or holdbacks, and closing conditions cover risks that cannot be priced precisely.
• Post-close budget. Issues the buyer accepts are funded in the investment plan instead of surfacing later as surprise spend.
• The 100-day plan. Urgent items, such as critical vulnerabilities, missing recovery paths or concentrated knowledge, become the first workstreams after close.

Sphere's assessment of SellersCommerce for Careismatic Brands shows how this works in practice. The team flagged three critical risk areas across architecture, client onboarding and infrastructure, and Careismatic's deal team used the report to negotiate enhanced representations and warranties and a structured technology escrow agreement. An estimated 6–12 months of post-acquisition rework was avoided through the restructured deal. The Careismatic and SellersCommerce case study has the full scope.

The 100-day plan is where diligence either pays off or gets filed away. It should start with what is urgent and hard to reverse: closing critical security gaps, securing access and credentials, and retaining the engineers who hold institutional knowledge. Debt reduction and modernization come next, sequenced against the product roadmap rather than run as a separate clean-up project. If the plan includes a rebuild or re-platforming, budget it the way you would any new build; our breakdown of what drives custom software development cost explains the variables.

How Long Does It Take, and Who Should Run It?

Most engagements run two to four weeks from kickoff to final report, and narrower scopes finish faster. The work follows four phases: agree the scope and secure access to code, systems and people; run the hands-on assessment; cost and validate the findings with the target; then deliver the report and a remediation roadmap. The output should be a risk register with dollar figures attached, an executive read-out the investment committee can use, and a post-close plan. Our sample technical due diligence report structure shows what each section should contain.

Who runs it matters as much as how long it takes. Look for genuine independence, meaning no referral relationships or implementation work tied to the findings, and senior engineers who review code and systems directly rather than summarizing a questionnaire. Sellers benefit from the same discipline: an assessment commissioned before a sale process starts lets founders fix the costliest issues before a buyer's team finds them. For the full methodology, scope options and partner criteria, see our complete guide to technical due diligence and code audits.

A Short Technology Due Diligence Checklist

Use these questions to confirm that an assessment scope covers the essentials before you sign an engagement letter.

1. Can the architecture support the growth in the deal model, and what would it cost to get there?
2. What is the state of test coverage, dependency health and code review on revenue-critical systems?
3. Are there unpatched critical vulnerabilities, and does a working incident response process exist?
4. Has disaster recovery been tested, and how long would a full restore take?
5. Which people hold knowledge nobody else has, and what happens if they leave?
6. Does the company own its code, and do open source licences create obligations in the shipped product?
7. How do cloud and tooling costs scale with customers and usage?
8. Do the AI and data capabilities in the pitch exist in production, and does the company hold the rights to its training data?

For a full, sectioned version a deal team can work through line by line, see our software due diligence checklist for buying a software company.