Buying a technology company means buying assets you can't physically inspect. Due diligence is how you confirm they exist, that the company owns them, and that they transfer cleanly.
When you acquire a technology company, you're buying things you can't physically inspect — source code, intellectual property, customer data, and the team that built it all. The diligence process is how you confirm those assets actually exist, that the company owns them, and that they transfer cleanly to you. Skipping or rushing it is how buyers end up paying for problems. Here's what to verify before you close.
1. Intellectual Property Ownership
This is the most common place tech deals go wrong. Confirm the company actually owns its core technology — that founders, employees, and contractors all signed valid IP assignment agreements, and that nothing critical was built by someone who never transferred their rights. Code written before incorporation, or by a contractor without a written assignment, may not belong to the company at all. We cover this in depth in our guide to IP assignment.
2. Open-Source and Third-Party Licenses
Modern software is built on open-source components, and some open-source licenses carry obligations that can affect proprietary code. Review what's under the hood: which components are used, under what licenses, and whether any of them create disclosure or distribution obligations you'd inherit.
3. Data and Privacy Practices
If the target collects customer data, verify how it was gathered, what the privacy policy promised, and whether that data can legally transfer in an acquisition. Data is often a core asset — and a regulated one. Promises made in a privacy policy bind the buyer after closing.
Evaluating a technology acquisition? We handle buyer-side diligence for deals across Arizona, California, and Texas — with deep focus on technology M&A.
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Review the company's major customer, vendor, and partner agreements. Two questions matter most: what obligations do they create, and can they be assigned to you without the counterparty's consent? A customer contract that terminates on a change of control can quietly erase the revenue you're paying for.
5. Employment and Key-Person Risk
In technology, the people are frequently the asset. Identify the key employees, confirm what's keeping them there, and structure retention into the deal. Note that restrictive covenants vary sharply by state — California broadly bars non-competes, while Arizona and Texas enforce reasonable ones.
6. Corporate and Financial Records
Confirm the cap table, outstanding equity and options, prior financings, and any debt or liabilities. Review the company's formation documents, board approvals, and whether prior fundraising was done cleanly. Surprises here can change the economics of the deal.
Good diligence isn't about finding a reason to walk away — it's about knowing exactly what you're buying so you can negotiate the right protections. Our M&A practice helps buyers do that with discipline.
Frequently Asked Questions
It varies with deal size and complexity, but a focused diligence process for a small-to-mid-size technology company often runs a few weeks to a couple of months. The biggest delays usually come from incomplete records on IP ownership and contracts.
Broken IP ownership — code or technology the company uses but doesn't fully own because an assignment agreement was never signed. It's common and fixable, but it has to be caught before closing.
They cover different ground. An accountant reviews the financials; a business attorney reviews IP ownership, contracts, assignability, employment, and legal liabilities. For a technology deal, the legal diligence is often where the real risk lives.