Any company with software at its heart should always be conducting its own due diligence and be prepared for investors to carry out their process. Technical due diligence is one of the essential streams of analysis that we undertake at Frog during an investment process.
Not every technical diligence is the same and the approach very much depends on the investment round that a company is in. At Frog, it is the opportunity for us to understand how technology has enabled a company’s success to date and to evaluate how well equipped a tech organisation is to scale up.
Not only is the exercise useful for an investor, but it is also tremendously valuable for the company. It is common for growth stage companies to have seen their growth suddenly outpace their development capacity and so a diligence can often result in identifying areas, whether known or unknown, that require shoring or strengthening and provide a reminder of any neglected housekeeping tasks.
In the toolkit, we outline how Frog conducts Technical Due Diligence including the following sequence:
Deal Origination
Early on, before term sheets have been agreed we will have had several meetings with all the members of the leadership team including the CEO, CTO or CIO. By understanding the product or platform through the eyes of the customer together with hearing the company’s growth strategy it enables us to fine tune the diligence investigation. It is also a good time for both sides to get comfortable with each other’s styles and to start forming what we hope turns into a long-term relationship
Demonstration and Documentation
If a demonstration environment or test account for the product is available, it is always useful for the diligence team to have access to that as early as possible. Before formal interviews begin, we review all documentation that the company provides.
Data Room
Building a comprehensive data room in advance of the diligence to include architecture, processes, organisational structure, disaster recovery, monitoring services, roadmap all helps our team build up a clear picture of how the organisation performs
CTO Kick-off call
The purpose of the CTO kick-off call is to set our preferred agenda, together with a list of people or subject experts that we wish to interview and to agree the final schedule for the interviews
Interviews
The formal diligence interviews can take between 1 and 2 days and involve people across the entire Product and Technical teams. It is usual to have several interviewers on our side so that we can be time efficient and introduce a wider diversity of thought and a greater challenge to our own evaluation
Read more in the attached toolkit >
