Vendor due diligence: when the seller should commission the tech audit
Vendor due diligence on technology inverts the usual setup: the seller commissions an independent technical audit before the process starts and shares the report with bidders, instead of letting each buyer run its own from scratch. It is standard practice in mid-market PE processes for the financial and legal workstreams, and it is becoming common for technology, especially when the tech is the asset.
Done well, vendor due diligence compresses the deal timeline and spares management from answering the same two hundred questions four times. Done badly, it is an expensive brochure that every buyer discounts to zero. What separates the two is credibility, and credibility follows a few rules.
When vendor due diligence accelerates a process
A competitive process with several bidders is the classic case. If each buyer runs full technical DD, each one takes days of your CTO’s time, during the quarter when the business must not miss its numbers, and a missed quarter mid-process costs more than any audit. One VDD report answers the eighty percent of questions all bidders share, and confirmatory work shrinks to the twenty percent each one cares about.
Tight timelines are the second reason. A process that needs to sign inside a quarter has no room for every bidder to schedule its own three-week review in sequence.
The least obvious reason is often the most valuable: you know there are findings, and you want to frame them first. A known weakness disclosed in a VDD report, with context and a remediation plan, is a fact to price. The same weakness discovered by a buyer’s advisors in week five reads as concealment, and concealment reprices more than the finding itself. The same logic applies when preparing for buy-side technical DD: disclosed debt costs less than discovered debt.
How buyers read a VDD report
Most of our audits are run for buyers, so we know how these reports are received. A buyer opens a vendor DD report with suspicion. The first check is who wrote it and what they were allowed to see. The second is whether it contains findings that hurt.
That second check decides everything. A report listing real weaknesses, with severity and cost attached, earns provisional trust, and the buyer’s confirmatory diligence becomes a verification pass of days rather than a full audit of weeks. A report that reads like marketing collateral fails the check, the buyer re-runs everything, and the seller has paid for a document that saved nobody any time. We have read VDD reports where the harshest finding was a suggestion to write more documentation. No buyer believes a codebase like that exists.
Buyers will still do confirmatory work, and sellers should want them to. The VDD sets the factual baseline; the buyer’s own advisors test it where the thesis is most exposed.
The rules that make it credible
Independence comes first. The audit firm is paid by the seller, every reader knows it, and the work has to survive that knowledge: a firm with a track record on the buy side, no success fee, no role in the sale mandate. What the reviewer got to see must be disclosed next to what they found: which repositories, which systems, how many days, who was interviewed. A scope statement that says "management presentations only" tells the buyer how much weight the conclusions can bear.
Findings stay unsanded. The seller sees the report before the bidders do, and the temptation to negotiate adjectives is real. The right response to an unwelcome finding is to fix it and have the report note the fix, never to soften the words. The report should also be dated with its evidence, because on a fast-moving codebase a nine-month-old audit is a historical document. Serious processes refresh the findings close to signing.
Pair it with a clean technical data room, and the report becomes the index to the evidence rather than a substitute for it.
When it is not worth the money
A single negotiated buyer changes the math: that buyer will run its own DD regardless, so the VDD mostly duplicates cost, and preparation without a report is the better spend. Very small deals rarely support the fee either, since technical DD pricing does not scale down as fast as check sizes do. And when you already know the codebase carries serious, fixable problems, commission the audit after ninety days of remediation, so the report records the fix rather than the problem.
The test we suggest to sellers who are considering it: would you be comfortable if the buyer’s own advisor had written this report? If yes, commission it, because that is the standard it will be read against. It is also the standard we hold on both sides of the table, whether a fund brings us in or a seller does, in our technical and AI due diligence work.