A technical due diligence report is the decision document that turns platform, security, engineering and operational evidence into commercial risk. For a deal team, the value is not the volume of technical detail. It is a clear view of what matters before signing, what needs Day-1 control, and what becomes post-close remediation.
The best reports are written for investors, acquirers and boards as much as CTOs. They explain whether the technology estate supports the investment thesis, which assumptions need protection, and which findings are normal maturity gaps rather than deal-critical issues.
FoundationState's technical due diligence service follows a practical engagement sequence: scoping, data room review, evaluation, interviews, findings calibration and readout. The technical due diligence report is the output of that process, but it should also become the input to negotiation, completion planning and the first 100 days.
What should a technical due diligence report contain?
A technical due diligence report should contain an executive summary, RAG-rated findings, a risk register, evidence-backed analysis, Day-1 ownership risks, and a 30-60-90 day remediation view. It should also state the scope, limitations and evidence reviewed so the reader knows how much confidence to place in each conclusion.
The ICAEW's corporate finance resources frame corporate finance around creating, developing and acquiring businesses, including transaction services and due diligence. A technical report should support that deal process by making technology risk usable for people making price, protection and ownership decisions.
For software investors, the core sections usually look like this:
| Report section | What it should answer | How deal teams should use it |
|---|---|---|
| Executive risk summary | Does the technology estate support the deal thesis? | Shape the investment committee view and immediate questions |
| Scope and evidence | What was reviewed, who was interviewed and what was excluded? | Avoid over-reading findings beyond the agreed diligence scope |
| RAG-rated findings | Which risks are red, amber or green, and why? | Prioritise discussion, negotiation and remediation |
| Risk register | What is the finding, likelihood, impact, evidence and owner? | Convert observations into tracked actions |
| Day-1 ownership risks | What must be controlled immediately after completion? | Plan access, supplier, backup and operational handover |
| 30-60-90 remediation roadmap | What should happen after close, in what order? | Budget, assign ownership and brief operators |
| Open questions | Which claims remain unverified? | Decide whether to ask for more evidence or add protection |
This structure matters because a due diligence report example without decision logic is just a technical assessment report. A useful investor due diligence output separates facts, interpretation and recommended action.
How should deal teams read the executive risk summary?
The executive risk summary should be read first and then tested against the detailed evidence. It should not be a generic introduction. It should state whether the platform, engineering organisation, security posture and operating model are credible for the transaction being underwritten.
A strong summary answers four questions. First, is the technology broadly fit for purpose? Second, what could impair the investment case? Third, what needs action before completion or on Day 1? Fourth, what remediation budget, leadership attention or specialist support is likely after close?
This is where deal context is essential. A thin documentation set may be acceptable in a seed-stage company. It is more concerning in a regulated SaaS business selling to enterprise customers. A single-region architecture may be rational at one revenue stage and a material resilience risk at another. The report should make those distinctions explicit.
FoundationState's guide to what technical due diligence is explains the broader assessment areas. In the report, those areas should collapse into a short commercial view: what is strong, what is weak, what is unknown and what the buyer should do next.
How do RAG ratings, severity and likelihood work?
RAG rating due diligence is useful only when the colours have defined meaning. Red should not mean "an engineer dislikes this". It should mean the finding may materially affect value, control, customer trust, resilience, security, IP ownership or the buyer's ability to execute the plan. Amber should mean a manageable but visible risk. Green should mean no material issue found within scope.
Severity and likelihood should be separated. A severe risk may be unlikely, such as a disaster recovery failure in a rarely tested scenario. A likely risk may be less severe, such as continued delay from poor release automation. Combining the two too quickly can flatten important judgement.
A practical report should describe each finding with:
- Severity: what happens if the risk materialises.
- Likelihood: how plausible that outcome is based on evidence.
- Evidence: which artefacts, interviews or system records support the finding.
- Commercial implication: whether the issue affects valuation, warranties, conditions, integration, customer confidence or post-close budget.
- Recommended action: what to do before signing, before completion, on Day 1 or during the first 100 days.
The goal is calibrated language. A red finding should be capable of changing the deal conversation. An amber finding should be visible in the operating plan. A green area should still describe any scope limits, because "nothing found" is not the same as "nothing exists".
What belongs in the risk register?
The risk register due diligence section is where narrative becomes action. It should not repeat every observation from interviews. It should capture the material findings that need ownership, prioritisation or tracking.
Each item should include the finding, affected area, evidence, likely impact, timing, owner and recommended treatment. Timing is especially important. Some risks must be addressed before signing because they affect trust or legal certainty. Some are completion conditions. Others are Day-1 control tasks or first-100-days improvements.
Day-1 risks report content usually covers access, infrastructure ownership, backup control, supplier dependency, critical credentials, production monitoring, customer commitments and incident response ownership. These are the things an acquirer needs to inherit cleanly the moment the deal closes.
The 30 60 90 day remediation view should then sequence work without pretending everything is equally urgent:
- 1First 30 days: secure administrative access, confirm backup ownership, rotate shared credentials, stabilise monitoring, and clarify supplier responsibilities.
- 2Days 31-60: address high-priority technical debt, improve release controls, document critical architecture, and close urgent security hygiene gaps.
- 3Days 61-90: formalise governance, reduce key-person dependency, improve testing, build a technical debt register, and align architecture work to the product roadmap.
Good due diligence recommendations are specific enough for operators to act on, but not so prescriptive that they ignore the target's context. The report should give direction, priority and rationale rather than dictate every implementation detail.
Which findings should influence negotiation?
Not every technical due diligence finding belongs in negotiation. Deal teams should separate normal maturity gaps from issues that change value, risk transfer or completion confidence. Engineering perfectionism is expensive when it treats every code smell as a commercial defect.
Findings are more likely to influence deal terms when they affect customer continuity, revenue protection, security disclosure, ownership of core software, material remediation cost, or the credibility of the growth plan. FoundationState's article on technical due diligence red flags covers the warning signs that most often deserve escalation.
Negotiation routes include price adjustments, specific warranties, indemnities, completion conditions, disclosure updates, retention structures, post-close budgets or board-level remediation commitments. The report should not decide legal drafting, but it should give counsel and the deal team enough evidence to decide which route is proportionate.
For example, unmanaged open source in a non-critical internal tool may be a post-close governance task. Unclear ownership of the target's core billing engine is different. Weak disaster recovery documentation may be an amber operational issue; an untested backup process owned by a departing contractor may be a Day-1 control risk.
The most useful technical due diligence findings are therefore concise: what the issue is, why it matters commercially, what evidence supports it, and what decision it should inform.
How should findings be shared with the target?
Sharing due diligence findings with the target should be handled carefully. The aim is to verify facts, avoid surprises and support a constructive post-close plan, not to create a second adversarial audit.
Before findings are finalised, management should have the opportunity to correct factual errors, provide missing evidence and explain context. That does not mean every disagreement disappears. It means the report distinguishes between verified risk, unverified claim and unresolved difference of interpretation.
In our diligence engagements we typically hold a findings calibration stage before the final readout. That conversation often improves the report. A target may provide a missing restore log, clarify why a supplier account exists, or explain a planned architecture change. Equally, a vague response may strengthen the finding because it shows the risk is not yet owned.
Deal teams should also decide what to share, when and with whom. Some findings are relevant to the target's leadership team immediately. Others are more appropriate for buyer-side counsel, lenders or the incoming operating team. Confidentiality, management sensitivity and negotiation posture all matter.
What happens after the report is handed to operators?
A technical due diligence report should not die in the data room after completion. If the deal proceeds, the report should become a practical handoff to the buyer, board and operating team.
The first step is to translate findings into owners. Security actions need accountable security or IT ownership. Architecture recommendations need engineering leadership. Product-technology alignment issues need product and engineering together. Supplier risks may need legal, procurement and technical owners.
The second step is to convert the risk register into a remediation backlog with dates, dependencies and evidence of closure. That work should stay connected to the investment thesis. If the thesis depends on enterprise expansion, then resilience, security and implementation scalability may outrank cosmetic refactoring. If the thesis depends on margin expansion, cloud cost and operational automation may move higher.
FoundationState's work with Finex Advisory reflects the same principle: technical assessment should help leadership make clearer decisions, not simply create another document. Reports are valuable when they turn uncertainty into prioritised action.
Get an independent view before report findings become post-close surprises. Contact FoundationState to scope a technical due diligence report that gives your deal team clear risk ratings, remediation priorities and decision-ready evidence.
Frequently Asked Questions
What does a technical due diligence report contain?
A technical due diligence report contains an executive risk summary, scope and evidence reviewed, RAG-rated findings, a risk register, technical analysis, Day-1 ownership risks, open questions and a remediation roadmap. The best reports translate architecture, security, engineering and operational evidence into commercial implications for investors, acquirers and boards.
What is a RAG rating in due diligence?
A RAG rating uses red, amber and green categories to show the materiality of findings. In technical due diligence, red should indicate a risk that could affect deal value, control, resilience, security or ownership. Amber indicates a manageable but visible issue. Green means no material concern was found within the agreed scope.
How should findings influence deal terms?
Findings should influence deal terms when they affect valuation, warranties, completion conditions, disclosure, customer continuity, software ownership or post-close investment needs. Minor engineering preferences should not drive negotiation. Material risks should be translated into proportionate protections, remediation budgets or specific actions before completion.
