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3 Red Flags in Technical Due Diligence (And How to Fix Them)
By Jason Wade
Whether you’re acquiring a business or preparing for investment, technical due diligence can make or break the deal. Red flags — even unintentional ones — raise risk and erode confidence. Here are three common issues that spook investors, and how to address them before they become deal-breakers.
Poor Documentation and Key Person Dependency
If your tech stack is undocumented and reliant on a single person who “knows how it all works,” that’s a major risk. Investors and acquirers want to see repeatable, transferable systems — not tribal knowledge. Start by documenting your infrastructure, integrations, and SOPs. Build a tech stack map, catalogue systems, and define ownership. Cross-train key functions to reduce single points of failure. Even basic process documentation (e.g., how deployments are done or how client requests are handled) goes a long way in showing maturity. The goal is operational resilience — not perfection. Showing that your systems can run without one person at the centre increases trust and valuation.
Outdated, Fragile, or Over-Customised Systems
Legacy software, unsupported platforms, and heavily customised solutions are red flags in due diligence. They signal higher transition costs, security risks, and potential downtime. If your core systems haven’t been updated in years — or you’re reliant on niche, in-house workarounds — it’s time to act. Conduct a tech audit to identify areas for improvement, and where feasible, simplify or modernise your stack. Use open APIs, cloud-native platforms, and industry-standard tools where possible. The more maintainable and scalable your systems, the better. Acquirers want confidence that your technology can support growth, not collapse under it. Cleaning up legacy systems before diligence shows foresight — and protects your negotiating power.
Lack of Clear Governance, Security, and Risk Management
If your business can’t answer basic questions about cybersecurity, backups, compliance, or access controls, that’s a major concern. Investors need to know that your digital assets are protected — and that you have processes to manage risk. Implement baseline controls: multi-factor authentication, role-based access, encrypted backups, documented policies, and incident response plans. A cybersecurity or GRC review helps identify gaps and gives you a remediation roadmap. Even if you’re not fully compliant yet, showing progress and awareness helps calm nerves. A Fractional CIO can help prepare your business for technical due diligence by running a pre-deal readiness assessment — making sure what’s under the hood inspires confidence, not concern.
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