Selling Your Tech Company? What Buyers Will Check in Due Diligence

Selling a technology company can be one of the most important moments in a founder’s career. But buyers do not just purchase your idea, your code, your customer list, or your revenue. They purchase risk.

During due diligence, buyers will test whether the company actually owns its technology, whether customer contracts are transferable, whether data practices are defensible, whether security problems exist, whether open-source software creates exposure, whether employees and contractors signed the right agreements, and whether the financial story matches the documents.

At Accord & Shield Legal, we have seen how much smoother a technology deal can be when the seller prepares before buyers start asking questions. We have also seen how deal value can be affected when IP assignments are missing, contractor agreements are unclear, privacy practices do not match the website, customer contracts have consent restrictions, or the data room is disorganized. The best time to prepare for tech M&A diligence is before the buyer is in the room.

Quick Answer: What Do Buyers Check When Buying a Tech Company?

Buyers of technology companies typically review IP ownership, source code, software licenses, open-source software, data privacy, cybersecurity, customer contracts, revenue quality, employees and contractors, equity records, tax issues, litigation, regulatory compliance, financial statements, key-person risk, and whether the company can transfer the assets or equity being sold. Sellers should clean up records before signing a letter of intent whenever possible.

Start With Deal Structure

The diligence process depends partly on deal structure. Common structures include an asset purchase, stock purchase, membership interest purchase, merger, acqui-hire, IP acquisition, licensing transaction, or a strategic investment with a purchase option.

A buyer may want an asset purchase to select specific assets and avoid certain liabilities. A seller may prefer an equity sale for tax, simplicity, or continuity reasons. The structure affects contracts, consents, tax treatment, employee transitions, assignment of IP, and post-closing liabilities. Our M&A practice focuses on diligence, structuring, negotiation, and closing, including technology M&A.

Organize the Data Room Early

A disorganized data room can slow the deal, raise buyer concerns, and reduce confidence. A seller-side tech diligence data room may include formation documents, the cap table, stock or membership records, board and member approvals, financial statements, tax returns, customer and vendor contracts, employment and contractor agreements, IP assignments, patent, trademark, and copyright records, source code policies, an open-source inventory, privacy and data security policies, security incident records, insurance policies, litigation records, loan and lien documents, licenses and permits, and material correspondence.

Buyers often judge the quality of management by the quality of the records.

IP Ownership Is Usually the First Major Issue

For a tech company, intellectual property is often the core asset. Buyers will want to know whether the company owns or controls the source code, software architecture, APIs, product designs, algorithms, databases, training data, documentation, product names, logos, domains, marketing materials, patents and applications, trade secrets, customer data, internal tools, and third-party integrations.

Sellers should be ready to show how the company acquired ownership. That usually means signed founder, employee, contractor, developer, designer, and agency agreements with IP assignment language.

Software Created by Contractors Can Be a Problem

Many startups rely on outside developers, freelancers, agencies, and technical contractors. That can create ownership issues if the agreements are weak or missing.

The U.S. Copyright Office explains that copyright generally initially vests in the author, though companies may own copyrights through works made for hire or assignments — and that certain commissioned works require a signed written agreement stating the work is made for hire. See the Copyright Office’s What is Copyright? and Works Made for Hire (Circular 30) resources.

Courts have addressed ownership disputes involving commissioned works and software. Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989), is the leading work-made-for-hire case, and in the software context, Woods v. Resnick, 725 F. Supp. 2d 809 (W.D. Wis. 2010), illustrates why software ownership and assignment timing can matter.

The seller takeaway: do not wait until diligence to discover that a developer never assigned the code.

Open-Source Software Should Be Inventoried

Buyers often ask for an open-source software inventory. The diligence concern is practical: buyers want to know what third-party code is in the product, what licenses apply, whether attribution is required, whether source-disclosure obligations exist, and whether the company can commercialize the product as represented.

A seller should consider preparing an open-source component list with license names and versions, the use case for each component, whether components were modified, where components appear in the product, the internal approval process, remediation history, and developer policies. Open-source issues can affect representations, indemnity, escrow, price, and closing conditions.

Trademark and Brand Ownership Should Be Clean

Buyers will want to know whether the company owns the brand it uses. Review the company name, product names, logos, taglines, domains, social media handles, trademark applications and registrations, assignment records, brand disputes, and any licenses or co-branding agreements.

The USPTO explains that trademark ownership may need to be transferred when a business is sold and that ownership changes can be recorded through assignment — see USPTO guidance on trademark assignments. If the trademark is owned by a founder personally, an affiliate, a contractor, or the wrong entity, fix that before the buyer finds it.

Data Privacy and Cybersecurity Will Be Reviewed

Technology buyers often focus heavily on data privacy and cybersecurity. They may review privacy policies, terms of service, data processing agreements, security policies, incident response plans, security incidents, vendor security reviews, SOC 2 or similar reports, penetration tests, data maps, retention practices, customer data rights, international data transfers, AI or analytics data use, employee access controls, and encryption and authentication practices.

The FTC advises businesses to start with a sound security plan, collect only what they need, keep information safe, and dispose of it securely — see the FTC’s Start with Security guide and Cybersecurity for Small Business resources, which also recommend inventorying hardware, software, data, and services and identifying cybersecurity risks.

If the company’s privacy policy says one thing and actual data practices say another, buyers may treat that as a serious diligence issue.

Customer Contracts Can Affect Valuation

A tech company’s value often depends on customer contracts. Buyers will review assignment provisions, change-of-control restrictions, termination rights, renewal terms, service-level commitments, data-processing terms, security obligations, indemnity provisions, liability caps, most-favored-customer clauses, exclusivity provisions, revenue concentration, customer churn, unpaid invoices, disputes or credits, and non-standard terms.

If major customer contracts cannot transfer or can terminate after a sale, valuation may change. This is the standard we call diligence-grade contracts — every agreement gets read twice: once at signing, once in the data room.

Vendor and Platform Dependencies Matter

Tech companies often depend on third-party vendors. Buyers may ask about cloud hosting providers, payment processors, APIs, data providers, AI model providers, analytics tools, CRM systems, email platforms, app stores, marketplace accounts, development tools, critical SaaS vendors, and reseller or channel relationships. A buyer will want to know whether the company can continue operating after closing without interruption.

Employees, Contractors, and Key-Person Risk

Technology companies often depend heavily on a small number of people. Buyers may review employee and contractor agreements, IP assignments, confidentiality agreements, non-solicitation provisions, compensation and option plans, contractor classification, immigration status where relevant, founder roles, key engineer retention, sales or customer-success dependency, and offer letters and employment policies.

If a founder, CTO, lead engineer, or key salesperson is leaving after closing, the buyer may require a transition agreement, employment agreement, consulting agreement, holdback, earnout, or price adjustment.

Financial and Tax Diligence Still Matters

Even in a tech deal, buyers will review financial and tax records. The IRS explains that the sale of a business may be treated as the sale of individual assets and that buyer and seller generally must allocate consideration among assets under the residual method — see IRS Sale of a Business and Publication 334, which discusses business sales and Form 8594 reporting.

Sellers should prepare financial statements, tax returns, revenue schedules, deferred revenue records, customer invoices, ARR or MRR calculations, churn metrics, expense records, the capitalization table, debt records, grants or credits, and sales and payroll tax records. Tax and accounting advisors should be involved early.

Tax treatment can vary based on your entity, transaction structure, and circumstances, so you should consult a qualified tax attorney or accountant before relying on any tax-related decision.

Deal Documents Buyers Will Scrutinize

A tech company sale may involve a letter of intent, confidentiality agreement, asset or stock purchase agreement, merger agreement, disclosure schedules, IP assignment documents, employee offer letters, founder restrictive covenant agreements, transition services agreement, escrow agreement, earnout terms, consulting agreements, customer consents, board or shareholder approvals, and closing certificates.

The purchase agreement will often include representations about IP ownership, software, open-source code, privacy, security, contracts, taxes, employees, litigation, and compliance. If diligence does not support those representations, the deal may slow down or the buyer may demand special indemnities, escrow, or price reductions.

The Legal Framework Behind a Technology Company Sale

M&A and contract law. The purchase agreement allocates risk through representations, warranties, covenants, closing conditions, indemnities, escrows, earnouts, and disclosure schedules.

Intellectual property law. IP diligence focuses on whether the company owns or validly licenses the software, content, trademarks, patents, trade secrets, and other technology assets it uses and sells.

Copyright and software ownership. Software ownership may depend on employment status, work-made-for-hire rules, written assignments, contractor agreements, and transfer documents.

Trademark law. Brand assets may need assignments or ownership updates when the company or assets are sold.

Privacy and data security. Buyers will review whether the company’s data practices match its policies and customer commitments, and whether reasonable security practices exist.

Employment and contractor law. Employee and contractor agreements, classification, retention, compensation, and IP ownership can affect closing and valuation.

Tax law. Deal structure and purchase price allocation can affect buyer and seller tax outcomes.

Seller-Side Checklist Before Going to Market

Before marketing the company or signing an LOI: confirm all founder, employee, and contractor IP assignments are signed; create a software and open-source inventory; review the privacy policy against actual data practices; review cybersecurity policies and incidents; clean up customer and vendor contracts and identify change-of-control and assignment restrictions; organize financial statements and tax returns; confirm trademark ownership; review patent and copyright records; review the cap table and equity grants; identify key-person risks; resolve outstanding disputes where possible; update data room materials; and coordinate legal, tax, accounting, and M&A advisors. For the full buyer-side view, see our tech M&A due diligence checklist.

How Accord & Shield Legal Can Help

We help technology companies, founders, startups, and small businesses prepare for and navigate M&A transactions — seller-side due diligence preparation, letter of intent review, deal-structure planning, asset and stock purchase agreements, IP ownership cleanup, contractor and employee assignment review, customer and vendor contract review, privacy and data-security diligence coordination, disclosure schedules, negotiation of representations, warranties, indemnity, escrow, and earnout terms, closing documents, and coordination with tax, accounting, and technical advisors.

We have seen that tech deals often turn on details founders did not expect: who owns the code, whether contractors signed assignments, whether open-source software is documented, whether the privacy policy matches actual practices, and whether customer contracts can transfer. Preparing early can preserve value and reduce closing friction.

Red Flags Before Selling Your Tech Company

Speak with counsel before going to market if founders or contractors never signed IP assignments; the company uses open-source software without an inventory; the privacy policy has not been reviewed recently; there has been a security incident; customer contracts have assignment or change-of-control restrictions; a key engineer or founder may leave after closing; the cap table is unclear or equity grants were not documented properly; the company depends on one customer or vendor; trademarks are owned by the wrong person or entity; contractor classification is unclear; revenue metrics are not well documented; there are unpaid taxes, debt, or liens; or you are about to sign a letter of intent.

Final Thoughts

Selling a technology company is not just about finding a buyer. It is about proving that the company owns what it says it owns, earns what it says it earns, protects the data it collects, and can transfer the business without hidden problems.

The strongest sellers prepare before diligence begins. They clean up IP, contracts, data practices, security records, cap tables, and financial documents before buyers start asking. If you are considering selling your technology company, Accord & Shield Legal can help you prepare for diligence, protect deal value, and avoid preventable surprises.

This article is provided by Accord & Shield Legal, PLLC for general informational purposes only. It is not legal advice, does not create an attorney-client relationship, and should not be relied upon as a substitute for advice from a qualified attorney who understands your specific facts, company structure, intellectual property, contracts, data practices, cybersecurity posture, tax circumstances, jurisdiction, and transaction goals. Technology M&A may involve corporate, contract, intellectual property, privacy, cybersecurity, employment, tax, securities, financing, and regulatory issues. Tax, accounting, valuation, technical, cybersecurity, and insurance matters should be reviewed with qualified professionals. Do not send confidential or privileged information unless and until an attorney-client relationship has been formally established in writing. Prior results do not guarantee a similar outcome.