The Evolution of Due Diligence in Technology Investments

Why Due Diligence Matters More Than Ever

In the world of mergers and acquisitions, due diligence has always been the cornerstone of informed decision-making. Traditionally focused on financials and legal checks, it has long helped investors and corporates assess risks before committing capital.

But in the technology sector, especially in software, the game has changed. With the rise of complex codebases, cybersecurity threats, and fast-moving competitive dynamics, traditional due diligence methods are no longer sufficient. Investors need a deeper, more technical, and more strategic approach to uncover both risks and opportunities.

This article explores the evolution of due diligence in technology investments and why new methodologies are reshaping how deals are won.

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From Traditional Due Diligence to Technology-Focused Analysis

Historically, due diligence revolved around three key pillars:

• Financial due diligence – validating revenue, EBITDA, and growth assumptions

• Legal due diligence – ensuring compliance, contracts, and ownership rights

• Commercial due diligence – analyzing the market, competition, and growth potential

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While these remain essential, they fail to capture the unique risks of software companies. Over the past decade, a new layer of technology due diligence has emerged, focusing on:

• Code quality and scalability

• Technical debt and engineering practices

• Cybersecurity posture and vulnerabilities

• Product roadmap alignment with market needs

This shift acknowledges that in technology, product and infrastructure are just as critical as financials. A scalable, secure, and differentiated product often determines whether a company can sustain growth.

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The Rise of “Shift Left” in Due Diligence

One of the most important trends reshaping due diligence is what we call “shift left.”

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Borrowed from software development, where teams integrate testing and security earlier in the process, “shift left” in due diligence means:

• Conducting investigations earlier in the deal cycle

• Building conviction before exclusivity

• Avoiding the trap of last-minute confirmatory work

Traditionally, investors waited until late-stage bidding to commission deep due diligence, often due to high costs. This created frustration: either spending heavily on a deal that might not close or missing out because conviction came too late.

By shifting due diligence earlier, investors gain a decisive competitive edge: they enter negotiations more confident, ask sharper questions, and sometimes secure deals before others have done their homework.

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Cost Pressures and the Pitfalls of Traditional Models

Why has due diligence been left so late in the past? The answer often comes down to cost.

In markets like North America, professional services fees have soared, making in-depth investigations prohibitively expensive. Many deal teams postpone analysis until they absolutely must, treating due diligence as a confirmatory step rather than a conviction-building one.

But this approach creates what we call the “middle trap”:

• Too little information to confidently pursue a deal.

• Too much uncertainty to walk away decisively.

This leaves investors stuck, potentially losing competitive advantage or overpaying for assets they don’t fully understand.

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A Holistic Approach: Micro and Macro Lenses

Modern technology due diligence goes far beyond checking documents. To capture the full picture, successful investors combine both a micro lens and a macro lens:

• Micro lens: examining product differentiation, customer experience, R&D performance, and go-to-market execution.

• Macro lens: understanding the broader market, adjacent opportunities, competitive threats, and the impact of disruptive forces like AI.

This dual perspective helps investors avoid the mistake of over-focusing on internal operations while missing external dynamics that may shape a company’s future.

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Beyond Financials: What Really Matters in Tech Due Diligence

In technology investments, product and market position often outweigh historical financials. Successful due diligence digs into:

• Customer voice: What do users love, and why do some prospects choose competitors?

• Partner ecosystem: How do resellers, integrators, and influencers view the company?

• Competitive differentiation: Is the product truly unique, or easily replicable?

• Leadership and vision: Does the management team have the ability to scale and adapt?

These insights help investors assess not just the present health of the business, but also its long-term sustainability and value creation potential.

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The Future of Due Diligence: AI and Human Expertise

Looking ahead, the future of due diligence will combine AI-powered data gathering with human expertise.

AI already accelerates tasks like:

• Scanning vast public data sets.

• Analyzing legal and technical documents.

• Identifying market signals across industries.

However, AI alone is not enough. Due diligence requires certainty, and machine outputs can be unreliable without expert validation. The winning model will be hybrid: technology for scale and efficiency, paired with seasoned experts who can interpret insights, test assumptions, and challenge management narratives.

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A New Era of Due Diligence

Due diligence in technology investments has evolved from a back-end checklist to a strategic differentiator. Investors who adopt a shift left approach, leverage technology-focused insights, and balance macro and micro lenses are more likely to build conviction and win deals.

At Dedale Intelligence, we believe the future of due diligence lies in combining deep expertise, operational agility, and advanced intelligence methods. By doing so, investors and corporates can make faster, smarter, and more confident decisions in the ever-changing technology landscape.

Looking to strengthen your technology due diligence process? Contact us to discover how Dedale Intelligence supports investors and corporates in building conviction earlier, faster, and smarter.