What Smart Investors Look for Before Acquiring a Tech Company

You’ve probably thought about building a tech company from scratch—coming up with a big idea, writing the code, launching a product, and grinding through years of growth. But here’s the thing: that’s not the only path. A lot of smart investors are skipping the long road and going straight for something that already works.

For them, buying a SaaS business is faster, sometimes less risky, and a quicker way to generate income. But—and this is important—just because it’s faster doesn’t mean it’s easier. The real challenge is knowing what to look for before leaping.

Market Fit and Demand Signals

If the product doesn’t solve a real problem, the rest won’t matter much. You’re looking for signs that people not only use the product but rely on it. That kind of “stickiness” matters. High retention is gold. It means users aren’t just testing it out—they’re coming back, again and again.

And don’t overlook customer feedback. Reviews, testimonials, and even support tickets can reveal a lot about what users think. If they’re asking for more features or submitting support tickets regularly, that’s not necessarily bad. It means they’re invested in the product.

Business Fundamentals: Revenue, Churn, and Profit Margins

Numbers don’t lie—unless you’re only looking at surface-level metrics.

Dig into recurring revenue. How much is coming in every month without new sales? That’s what gives SaaS businesses their charm. Predictable income.

Next, look at customer acquisition cost (CAC) versus customer lifetime value (LTV). If it costs $50 to acquire a customer and they only bring in $40 of value, that’s a problem. You want the opposite. Spend $50, earn $200. That’s sustainable.

Churn rate is another one to watch. If users are leaving faster than they’re arriving, something’s broken. It could be the product. It could be support. It could be the onboarding experience. But either way, it’s a red flag.

And don’t forget to check profit margins. SaaS companies often have lower overhead than traditional businesses, but that doesn’t guarantee high margins. Understand where the money’s going—hosting, development, customer service, marketing. Know what you’re getting into.

Operational Infrastructure and Team

You’re not just buying a product—you’re buying a system. Is there a team in place that knows how to run things? Or is everything built around one person, usually the founder? If that founder disappears, does the whole operation fall apart?

Strong documentation is a green flag. It means processes can be repeated and scaled. Weak documentation? That’s your first clue that things might get messy after the handoff.

Then there’s the tech stack. You don’t need to be a developer, but it helps to know if the platform is built on stable, modern technology. Is the codebase clean and well-maintained? Or is it a patchwork of quick fixes?

Competitive Landscape and Moat

Tech is competitive. You need to understand where this business sits in the market. Is it fighting giants, or carving out a niche?

A strong moat means the business has something hard to replicate. That might be a unique feature set, an especially loyal customer base, or just great SEO that’s hard to outrank.

Sometimes the product doesn’t even need to be wildly innovative. It just needs to serve a specific audience better than anyone else.

Try to figure out how defensible the business really is. If a competitor pops up tomorrow with a nearly identical product, will customers switch? Or are they locked in—either emotionally or functionally?

A good moat keeps your investment safe when the market gets noisy.

Risks and Red Flags to Watch For

Is the business overly dependent on one client? If that client leaves, does half the revenue disappear? Is most of the traffic coming from one source, like a single paid ad channel? That’s risky.

Make sure you’re not walking into hidden legal issues. That means contracts, software licenses, trademarks—everything. Double-check that the business actually owns what it says it owns.

One overlooked area? Customer support. If buyers are walking into an inbox full of angry messages, they’re not going to stick around. You want a product that customers love—or at least like enough not to complain every day.

Documentation, ownership, and clarity matter more than you might think. Don’t just assume everything is neat behind the scenes. Ask.

Conclusion

There’s a lot to love about acquiring a tech company. The scalability. The built-in revenue. The systems that are already working. But you’ve got to do your homework. Look beyond the surface. As you dig into all those details, don’t overlook the intangible stuff. The code, the brand, the customer list, even the way the product looks and feels. These are assets, too. That’s why understanding how to value intellectual property is just as important as understanding cash flow.