Ready to Invest in a Tech-led business? Start Here.

Introduction

Before committing capital to a tech-led business, we know that building solid investment commercials relies on a technically confident understanding of potential value, beyond surface metrics. We also know that digital transformation, cybersecurity risk and the rise of AI have made this assessment much more complex. To get ahead on your next deal, we’re sharing these questions to start uncovering how well a tech asset lines up with your market ambitions.

First, a word on Tech Due Diligence

Modern Tech Due Diligence today has expanded well beyond tech stack in scope. Sure, the right technical functionality is important. But today investors need to be confident that an asset also has ‘the right fit’ of tech fundamentals - enterprise-wide - to deliver on the commercial promise.

Notice we said ‘enterprise-wide’ - we’ll come back to this.

Key to understanding the ability of tech within an asset to be a catalyst for growth is to look beyond the tech stack itself. There’s a lot of nuance here to uncover.

Which brings us to our starter questions - these are four of a number that lead into a deeper understanding of risk and potential in a business as you build out a thesis.

Q1 Tell me about tech team structure?

Sounds simple. But how well the Founder &/or CTO explains clearly both the key technology team members and their roles is an indicator of internal alignment, actual and potential performance, including whether constructive tension is built in between product and technology functions.

This matters because it goes to the heart of the ability to keep innovating to meet customer needs today and into the future.

Q2 What is the tenure of the core team?

A strong consistent core team is an indicator of positive culture and work patterns, and a sign of experience and knowledge building up in house. Look for at least 3-4 of the key roles to be 'stable'. If not, dig deeper behind why and look for indicators that any underlying issues are being addressed, and be on the lookout for potential gaps in code familiarity through team turnover.

This matters because it goes to the heart of functional sustainability and resilience, important in a business now and as it scales.

Q3 Is the current architectural model fit for purpose?

Assess whether the architecture is well-suited to the business's current needs and future goals. Consider factors such as the size and structure of the development team, operational requirements like performance and scalability, and the flexibility required for innovation. Whether the company uses a monolithic architecture or a microservices-based approach, the key is determining if it is intentionally designed to support business operations efficiently and scale as needed.

Don’t just rely on the CTO’s perspective, seek input from other leaders to understand how well the architecture fits the company’s broader strategic goals.

This matters because an architecture that is fit for purpose will help ensure the company can grow without incurring significant requirement for repair or rework.

Side note:

We talk in terms of a monolith versus microservices architecture.

• A monolithic architecture consolidates all functions within a single application, often simplifying initial development and delivering high performance with lower inter-service latency. (Think of one big ship in the channel - self contained but slow to turn).

• A microservices architecture provides modular components that can be updated independently, enabling greater flexibility and scalability. (Think of a fleet of small boats in the channel - each moving together with turns quick to navigate).

When comparing the two, it’s important to understand that neither approach is inherently better.

The most suitable choice depends on the business model and specific requirements including factors such as cost, time, and operational risk.

• A monolithic architecture can be beneficial when teams are smaller, interdependencies are high, or rapid initial deployment is essential. However, monoliths can become complex and costly to modify as the business scales.

• A microservices architecture, while potentially more costly to implement initially, can offer advantages in adaptability and speed, particularly in environments with larger, specialised teams or rapidly evolving requirements.

Ultimately, the prudent approach is to choose the architecture that best balances these considerations in line with the business model and future goals.

Q4 What is the level of key supplier dependency, and where does proprietary differentiation truly exist?

Assess the business’s reliance on key suppliers or third-party technologies critical to the product or platform. Consider how easily the company could switch providers if needed, and whether competitors could leverage similar dependencies. It is important to identify where true proprietary differentiation exists - i.e. what aspects of the technology, process, or business model are unique and difficult for competitors to replicate?

True value lies in the areas where the business has unique control or innovation that sets it apart in the market.

This matters because high reliance on common third-party technologies or suppliers may weaken the company’s competitive position, particularly if competitors can replicate or access similar capabilities.

These are just 4 of many questions Investors can and should be asking to better understand how well the tech fundamentals of a business align with commercial aspirations. 

Conclusion

Effective and informative tech due diligence today goes beyond technical verification to interrogate how enterprise wide tech fundamentals across people, product, process and tech stack makes for achievable strategic intent.

Asking the right questions while forming your investment thesis can uncover the true potential value of technology, positioning it not just as a functional asset but as a strategic driver in your portfolio. Armed with detailed due diligence, investors can make decisions that are not only technically sound but also aligned with broader business strategies.

This article aims to equip investors with better insight while making informed, strategic decisions about tech investments.