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Burning questionWhat kind of business requires technical due diligence when considering an investment? The natural answer is any business that develops a software product or service requires an in-depth evaluation of its technology and practices. However, that is not a complete or accurate response. The real answer is practically any business that leverages and relies upon technology to conduct day-to-day activities and deliver results. Guess what? That encompasses practically every business today!

Ok, but what about a business that performs in-home medical therapy for children? Or your local health club whose main asset is a workout facility? Or a construction company? Why would technical due diligence be required for businesses like those?

Even a healthcare services business is likely technology-enabled. Its key asset is its people with appropriate medical expertise who are typically far away from sitting at a computer desk all day. However, this type of business often has a significant technology component. They may rely on business-critical systems for scheduling patients, payment of co-pays, storing patient records including protected health information (PHI), accounting, digital phones, a CRM, and a myriad of other internal line of business applications. This business must be robust from the information technology (IT) perspective to ensure investors are not inheriting a disastrous mess that may be very difficult/costly to fix or grow. The perception that evaluating the IT practices, processes, tools, and team is not as important relative to an investment in a product development company is unwise. An IT due diligence activity is still needed to ensure there are no investment red flags and undue risk.

Information Technology (IT) due diligence likely won’t look at software architecture and code (unless proprietary software has been built to help the business) but it will look at back-office systems, IT costs, team structure, physical and cybersecurity, business continuity plans, compliance, governance, and general IT management. A failure in any one of these areas can have a significant negative effect on the business during the investment timeline.

If you are considering an investment in a tech-enabled business, involve your favorite qualified IT expert (hopefully it is Cyligent!) well before the close of that investment. They can help evaluate the technology components of the business, reduce risk, and optimize your future costs.