Minimal SaaS Technical Due Diligence

For more than six years now I've been deeply involved in and in recent years leading Xenon Partners' technical due diligence practice. This means that when we issue an LOI (Letter of Intent) to acquire a company, it's my responsibility to dig deep, very deep, into the often arcane technical details associated with the seller's SaaS product. Over this period I've either been materially involved in or led technical due diligence for DreamFactory, Baremetrics, Treehouse, Packagecloud, Appsembler, UXPin, Flightpath Finance, as well as several other companies.

While I've perhaps not seen it all, I've seen a lot, and these days whenever SaaS M&A comes up in conversation, I tend to assume the thousand-yard stare, because this stuff is hard. The uninitiated might be under the impression that SaaS technical due diligence involves "understanding the code". In reality, the code review is but one of many activities that must be completed, and in the grand scheme of things I wouldn't even put it in the top three tasks in terms of priority. Further complicating the situation is the fact that sometimes due to circumstances beyond our control we need to close a deal under unusually tight deadlines, meaning it is critically important that this process is carried out with extreme efficiency.

Due to the growing prevalence of SaaS acquisition marketplaces like and Microassets, lately I've been wondering what advice I would impart to somebody who wants to acquire a SaaS company yet who possesses relatively little time, resources, and money. What would be the absolute minimum requirements necessary to reduce acquisition risk to an acceptable level? This is a really interesting question, and I suppose I'd focus on the following tasks.

Keep in mind this list is specific to the technology side of due diligence; there are also financial, operational, marketing, legal, and HR considerations that also need to be addressed during this critical period. I am not a lawyer, nor an accountant, and therefore do not construe anything I say on this blog as being sound advice.

Further, in this post I'm focused on minimal technical due diligence here, and largely assuming you're reading this because you're interested in purchasing a micro-SaaS or otherwise one run by an extraordinarily small team. For larger due diligence projects there are plenty of other critical tasks to consider, including technical team interviews. Perhaps I'll touch upon these topics in future posts.

Create Accurate Architectural Diagrams

Please note I did not suggest asking for architectural diagrams. Of course you should ask for them, but you should not believe a single thing you see on the off chance they even exist. They'll tell you they do exist, but they likely do not. If they do exist, they are almost certainly outdated or entirely wrong.

But I digress. On your very first scheduled technical call, open a diagramming tool like and ask the seller's technical representative to please begin describing the product's architecture. If they clam up or are unwilling to do so (it happens), then start drawing what you believe to be true, because when you incorrectly draw or label part of the infrastructure, the technical representative will suddenly become very compelled to speak up and correct you.

These diagrams don't have to be particularly organized nor aesthetically pleasing; they just need to graphically convey as much information as possible about the application, infrastructure, third-party services, and anything else of relevance. Here's an example diagram I created on for the purposes of this post:

EmailReputationAPI architectural diagram

Don't limit yourself to creating a single diagram! I suggest additionally creating diagrams for the following:

  • Cloud infrastructure: For instance if the seller is using AWS then try to identify the compute instance sizes, RDS instances, security groups, monitoring services, etc. The importance of diagramming the cloud infrastructure becomes even more critical if Kubernetes or other containerized workload solutions are implemented, not only due to the additional complexity but also because frankly in my experience these sorts of solutions tend to not be implemented particularly well.
  • Deployment strategy: If CI/CD is used, what does the deployment process look like? What branch triggers deployments to staging and production? Is a test suite run as part of the deployment process? How is the team notified of successful and failed deployments?

Build the Development Environment and Deploy to Production

We have very few requirements that if not met will wind up in a deal getting delayed or even torpedoed, however one of them is that somebody on our team must successfully build the development environment on their local laptop and subsequently successfully deploy to production. This is so important that we will not acquire the company until these two steps are completed. These steps are critical because in completing them you confirm:

  • You're able to successfully clone the (presumably private) repository and configure the local environment.
  • You're able to update the code, submit a pull request, and participate in the subsequent review, testing, and deployment process (if one even exists)
  • You've gained insights into what technologies, processes, and services are used to manage company credentials, build the development environment, merge code into production, run tests, and trigger deployments.

Keep in mind you don't need to add a new feature or fix a bug in order to complete this task (although either would be a bonus). You could do something as simple as add a comment or fix a typo. Keep in mind at this phase of the acquisition process you should steadfastly remain in "do no harm" mode, and are only trying to confirm your ability to successfully deploy the code, not make radical improvements to the code.

Confirm IP Ownership and Third-party Service Reliance

This isn't strictly a technical task, but it's so important that I'm going to color outside the lines and at least mention it here. The software product you are considering purchasing is almost unquestionably built atop the very same enormous open source (OSS) ecosystem upon which our entire world has benefited. There is nothing at all wrong with this, and in fact I'd be concerned if it wasn't the case, however you need to understand that there are very real legal risks associated with OSS licensing conflicts. As I've already made clear early in this post, I am not a lawyer so I'm not going to offer any additional thoughts regarding the potential business risks other than to simply bring the possibility to your attention.

The software may additionally very well rely upon commercially licensed third-party software, and it is incredibly important that you know whether this is the case. If so, what are the terms of the agreement? Has the licensing fee already been paid in full, or is it due annually? What is the business risk if this licensor suddenly triples fees?

There are actually a few great OSS tools that can help with dependency audits. Here are a few I've used in the past:

That said for reasons I won't go into here because again, IANAL, it is incumbent upon the seller to disclose licensing issues. The buyer should only be acting as an auditor, and not the investigatory lead with regards to potential intellectual property conflicts. You should always retain legal counsel for these sorts of transactions.

Finally, if the software relies on third-party services (e.g OpenAI APIs) to function (it almost certainly does), many of the same aforementioned questions apply. How critical are these third-party services? At some point down the road could you reasonably swap them out for a better or more cost-effective alternative?

Review or Complete a Penetration Test

A penetration test (pen test) is an authorized third-party cybersecurity attack on a computer system. In my experience for SaaS products these pen tests cost anywhere between $5K and $10K and take 1-2 weeks to complete once scheduled. A lengthy report is typically delivered by the pen tester, at which point the company can dispute/clarify the findings or resolve the security issues and arrange for a subsequent test.

Also in my experience, if you're interested in purchasing a relatively small SaaS with no employees other than the founder, it's a practical certainty the product has never been pen tested. Further, if the SaaS is web-based and isn't using a web framework such as Ruby on Rails or Laravel, for more reasons than I could possibly enumerate here I'd be willing to bet there are gaping security holes in the product (SQL injection, cross-site scripting attack, etc) which may have already been compromised.

Therefore you should be sure to ask if a pen test has recently been completed, and if so ask for the report and information about any subsequent security-related resolutions. If one has not been completed, then it is perfectly reasonable to ask (in writing) why this has not been the case, and whether the seller can attest to the fact that the software is not known to have been compromised. If the answers to these questions are not satisfactory, then you might consider asking the seller to complete a pen test, or ask if you can arrange for one on your own dime.

Cash Strapped? Consider a DIY Approach

If you're sufficiently technical and have a general familiarity of cybersecurity concepts such as the OWASP Top Ten, then you could conceivably lower the costs associated with this task by taking a DIY approach. Here is a great list of bug bounty tools that could be used for penetration test purposes. That said, please understand that you should in no circumstances use these tools to test a potential seller's web application without their written permission!

Accept the Fact Technical Debt Exists

If you think the SaaS you're considering buying doesn't have any technical debt, then consider the fact that even the largest and most successful software products in the world are filled with it:


That said, due to perfectly reasonable decisions made literally years ago, it is entirely possible that this "UI change" isn't fixable in 3 months, let alone 3 days. And there is a chance it can't ever be reasonably fixed, and anybody who has built sufficiently complicated software is well aware as to why. Technical debt is a natural outcome of writing software, and there's nothing necessarily wrong with it provided your acknowledge its existence and associated risks. But there are limits to risk tolerances, and if the target SaaS is running on operating systems, frameworks, and libraries that have long since been deprecated and are no longer able to receive maintenance and security updates, then I think it is important to recognize that you're probably going to be facing some unwelcome challenges in the near term as you update the software and infrastructure instead of focusing on the actual business.

Confirm Access to Company and System Credentials

Of everything that comprises technical due diligence there is nothing that makes me break out into a sweat more than this topic. Any SaaS product will rely upon numerous if not dozens of credentials. GSuite, AWS, Jenkins, Atlassian, Trello, Sentry, Forge, Twitter, Slack... this list is endless. Not to mention SSH keys, 2FA settings, bank accounts, references to founder PII such as birthdates and so forth. In a perfect world all of this information would be tidily managed inside a dedicated password manager, but guess what it's probably not. I cannot possibly impress upon you in this post how important it is for you to aggressively ask for, review, and confirm access to everything required to run this business because once the paperwork is signed and money transferred, it's possible the seller will be a lot less responsive to your requests.

Ensuring access to all credentials is so critical that you might consider structuring the deal to indicate that part of the purchase price will be paid at some future point in time (90 days from close for example) in order to ensure the founder remains in contact with you for a period of time following acquisition. This will give you the opportunity to follow up via email/Zoom and gain access to services and systems that were previously missed.


This blog post barely scratches the surface in terms of what I typically go through during a full-fledged due diligence process, but I wanted to give interested readers a basic baseline understanding of the minimum requirements necessary to assuage my personal levels of paranoia. If you have any questions about this process, feel free to hit me up at @wjgilmore, message me on LinkedIn, or email me at