A Founder’s Guide to the Software Due Diligence Process
Curious what happens after signing an LOI? This guide breaks down the software M&A due diligence process into four clear phases, helping founders prepare, stay organized, and build trust with buyers.
Due diligence is often viewed as the most stressful part of selling a software company. Many founders imagine long nights of pulling data, constant requests, and a feeling of losing control once the process begins. In reality, due diligence is much more structured and predictable. When it is prepared for properly, it becomes a clear confirmation of what already makes the business strong.
At Solen Software Group, we encourage founders to think of diligence as a way to create alignment. It protects both sides by ensuring that everyone shares the same understanding of the business before moving toward a long-term partnership.
The Four Core Phases of a Typical Software Diligence Process
Every buyer’s process has small differences, but most professional software acquisitions follow a similar flow. The sequence is logical and designed to answer a clear set of questions.
1. Data Room Preparation
This is where the seller organizes and uploads the key documents buyers need to begin evaluating the business.
This normally includes: • Financial statements • Tax filings • Revenue breakdowns • Churn and retention data • Customer lists • Contracts and renewals • Org charts • Product documentation • Security and compliance materials • Commercial KPIs
Clean, organized data sets the tone for the entire process.
2. Document Review and Q&A
Once the data room is ready, the buyer’s team reviews the documents and submits questions.
These usually focus on: • Revenue recognition • Pricing history • Gross margin changes • Sales cycles • Customer concentration • Product roadmap • Support costs • Renewal and upsell patterns
This phase helps the buyer understand how the business operates day to day.
3. Confirmatory Checks
After reviewing the core materials, buyers validate key elements through focused checks.
These typically include:
• Legal review of contracts, IP ownership, and any open issues• HR review of employment structure and key personnel• Technical assessment of architecture, scalability, security, and documentation quality
Technical diligence is not a line-by-line code inspection. The goal is to understand how maintainable, stable, and well-documented the technology is and whether the team can continue building efficiently.
4. Final Confirmations and Signing
Once major items are reviewed, the process moves to final steps such as: • Representations and warranties • Disclosure schedules • Working capital adjustments • Holdback or escrow terms • Final legal documentation • Signing
This is the point where all parties confirm the shared understanding of the business.
What Buyers Are Really Looking For
Founders often worry that small issues will sink a deal. In practice, buyers value consistency and clarity more than perfection. A dip in margin or a quarter with higher churn is acceptable when the context is explained. Buyers want to understand the story behind the numbers and see that the founder has a clear grasp of the business.
Where Most Delays Come From
The most common friction point in diligence is not financial risk. It is disorganization. Examples include: • ARR numbers that do not match billing • Billing that does not match accounting • Customer lists that do not match contracts
These issues can slow the process significantly, even when the business is fundamentally healthy. Founders who prepare their data in advance often move through diligence much faster and with far less stress.
A Well-Run Process Builds Trust
Diligence is not meant to be adversarial. It is a way to ensure both sides enter the partnership with confidence. When information is clear and expectations match reality, the relationship strengthens. Trust becomes the foundation of a successful acquisition.
In Summary
Due diligence is a structured and predictable process when the seller is prepared. It verifies the strength of the business, aligns both parties, and creates confidence that the company is ready for its next chapter.
If you are thinking about selling and want guidance on how to prepare for a smooth diligence process, the Solen team is always open to a conversation.