Tech DD vs Financial DD

Financial due diligence and tech due diligence are complementary assessments that together give you a complete picture of a target company. Here’s how they differ and why you need both.

The Core Difference

Financial DD answers: What do the numbers say? Tech DD answers: Are those numbers sustainable?

Financial DD evaluates historical performance, revenue quality, working capital, and financial projections. Tech DD evaluates whether the technology can actually deliver on those projections.

Side-by-Side Comparison

Dimension	Financial DD	Tech DD
Focus	Revenue, costs, margins, cash flow	Code, architecture, infrastructure, team
Question	Is the company profitable and growing?	Can the technology support that growth?
Performed by	Accountants, financial advisors	Engineers, technical consultants
Timeline	2-4 weeks	1-3 weeks
Output	Financial model, quality of earnings	Technical risk report, debt quantification

What Tech DD Catches That Financial DD Misses

Hidden Technical Debt

Financial statements don’t show technical debt. A company can be profitable today while accumulating massive engineering liabilities that will require millions to resolve. Tech DD quantifies this invisible cost.

Scalability Ceilings

Revenue projections assume the product can handle growth. But if the architecture can’t scale beyond current load without a significant rewrite, those projections are optimistic.

Key-Person Risk

Financial DD might note employee costs and team size. Tech DD reveals when one engineer holds all the institutional knowledge - a risk that financial models can’t capture.

Infrastructure Cost Trajectories

Cloud costs that are manageable today might grow faster than revenue as the customer base scales. Tech DD analyzes infrastructure cost efficiency and identifies optimization opportunities.

Security Liabilities

A data breach can cost millions in fines, legal fees, and lost customers. Financial DD doesn’t assess security posture. Tech DD identifies vulnerabilities before they become expensive problems.

What Financial DD Catches That Tech DD Doesn’t

Tech DD doesn’t replace financial DD. Financial due diligence covers:

Revenue recognition and quality of earnings
Working capital requirements
Tax liabilities and compliance
Customer concentration risk (from a financial perspective)
Historical financial performance and trending

Why You Need Both

In a technology-driven acquisition, running only financial DD is like buying a car based solely on the gas mileage report without ever opening the hood. The numbers might look great, but the engine could be falling apart.

The most informed deals combine both:

Financial DD validates the business model and economics
Tech DD validates the technology that powers the business
Together, they give you a complete risk picture

When to Run Tech DD Alongside Financial DD

Always for SaaS and software product acquisitions
Always for technology-enabled service businesses
Recommended for any business where technology is a meaningful part of the value proposition

Learn about our tech DD process and see the full checklist of what we assess. For pricing, see our cost guide.