Software Due Diligence

Software due diligence is the deep-dive assessment of a target company’s software product: the code, the architecture, the engineering practices, and the technical decisions that determine whether the product can scale, be maintained, and deliver on its roadmap.

If you’re acquiring a software business, the software itself is the asset. Software DD tells you what that asset is actually worth.

What Software Due Diligence Covers

Code Quality

Readability and maintainability - Can a new developer understand and modify the code?
Consistency - Are coding standards applied consistently across the codebase?
Complexity - Are there overly complex modules that are fragile or hard to change?
Dead code and unused dependencies - Is the codebase clean or bloated?

Architecture

Design patterns - Are established patterns used appropriately?
Modularity - Is the system modular, or is everything entangled in a monolith?
Data architecture - Is the data model well-designed and properly normalized?
API design - Are interfaces clean, versioned, and documented?
Scalability - Can the architecture handle significantly more load without a rewrite?

Testing & Quality Assurance

Test coverage - What percentage of code is covered? Are the tests meaningful?
Test types - Unit tests, integration tests, end-to-end tests - what’s the mix?
CI/CD integration - Are tests run automatically before deployment?
Manual QA - Is there a QA process? How are bugs tracked and prioritized?

Licensing & IP

Open source usage - What open source components are used? Are licenses compatible with the business model (especially copyleft licenses like GPL)?
IP ownership - Is all code owned by the company? Are there contractor or assignment issues?
Third-party commercial licenses - Are they current, transferable, and properly documented?

Technical Debt

Technical debt is the gap between how the software was built and how it should have been built. We quantify this in terms of:

Estimated engineering effort to resolve
Risk level (critical vs. manageable vs. cosmetic)
Impact on development velocity and product quality

Software DD for Different Buyers

The focus shifts depending on your acquisition strategy:

VCs - Focus on architecture scalability and team capability. Can this product grow?
Search funds - Focus on maintainability and key-person risk. Can you operate this after the transition?
Micro PE - Focus on integration compatibility and technical debt cost. What’s the true post-acquisition investment?

Beyond the Code

Software doesn’t exist in isolation. Our assessment also considers the IT infrastructure that supports the software, and the team’s ability to maintain and evolve it.

See our complete tech DD checklist and learn about the assessment process.