AdTech Due Diligence: 5 Red Flags Every Investor Should Know
Why AdTech Due Diligence Matters in 2025
AdTech is one of the most dynamic sectors in digital M&A. With Connected TV, retail media, and programmatic solutions growing fast, investors are eager to acquire platforms, SSPs, and DSPs. But not every company with strong revenue growth is a safe bet. Beneath the surface, technical debt, compliance gaps, or weak monetization can undermine long-term value.
Every AdTech due diligence (DD) is unique. The maturity of the target company strongly influences the process: a 10-employee startup requires a different approach than a 300-person established platform. At smaller targets, surprises are more common – sometimes forcing us to adjust the DD roadmap on the fly. Larger organizations tend to provide clean reporting, but the challenge lies in filtering out the truly relevant signals.
From our experience, an effective AdTech DD blends structured checklists with flexibility for unexpected findings. Below are five common red flags, illustrated with real-world examples from past projects.
Red Flag #1 - Outdated or Rigid Tech Stacks
One of the first things we request in the dataroom is an architecture diagram.
Modern AdTech requires API-first, cloud-native, and modular stacks. Without these, integration costs skyrocket and scaling slows dramatically.
Red Flag #2 - Weak Monetization and Yield Models
We always dig into customer cohorts, revenue concentration, and cloud cost reports.
Strong AdTech platforms show diversified revenue streams (CTV, mobile, display, retail media) and have robust yield optimization mechanisms in place. If monetization relies too heavily on a single format or client, the growth story collapses quickly.
Red Flag #3 - Data & Privacy Compliance Gaps
Data is the fuel of AdTech, but compliance is non-negotiable.
Privacy-first platforms integrate GDPR/CCPA compliance by design: secure consent handling, anonymization, and transparent reporting. Without this, regulatory risk can wipe out enterprise value overnight.
Red Flag #4 - Dominant Platform Dependencies and Moat Defensibility
Many AdTech and digital media firms depend heavily on dominant platforms – not only the classic walled gardens like Google, Meta, or Amazon, but also traffic sources in adjacent areas such as affiliate marketing. In one DD, we discovered that over 70% of a platform’s traffic came from Google search. A single algorithm update – or more recently, AI-driven answer engines such as Gemini summaries – can drastically reduce visibility and traffic overnight.
Such dependencies raise the question of how defensible the company’s moat really is. A moat built on a single dominant partner is fragile. By contrast, platforms that diversify integrations, traffic sources, and acquisition channels can demonstrate resilience. Investors should always ask: If one partner changes its rules tomorrow, does the business still stand strong?
Red Flag #5 - Missing Product-Market Fit
Strong product-market fit shows up in retention metrics, NDR (net dollar retention), and expansion revenue. In one DD, we noticed that several roadmap features had been delayed for over 18 months. Combined with high churn in smaller customer segments, this suggested that the platform’s positioning was unclear and resources overstretched.
By contrast, we have also seen smaller startups with almost no documentation but highly committed clients and strong upsell metrics. Despite the chaos, those “hidden gems” proved more attractive than polished but stagnant competitors.
How AdTech DDs Are Run in Practice
A typical AdTech DD unfolds in four phases:
Kickoff & Scope: clarifying investor priorities and risk areas.
Dataroom Review: analyzing architecture, financials, cloud reports, contracts, and data processes.
Management Meetings: Tech → Product → Commercial → Data/Privacy → Legal. Each session designed to uncover strengths, weaknesses, and hidden risks.
Synthesis & Reporting: summarizing red flags and providing actionable recommendations.
At smaller targets, surprises are common – missing logs, outdated diagrams, incomplete SLAs. In those cases, we immediately adjust: request raw logs, run code spot-checks, or schedule deep dives with lead engineers. At larger organizations, the challenge is less about missing data and more about interpreting signals amidst a flood of reports.
Key Takeaways for Investors
Always verify if the tech stack is modern and scalable – documentation gaps are red flags.
Check monetization models: revenue diversity and yield optimization separate winners from laggards.
Ensure compliance processes exist in practice, not just on paper.
Assess dependence on walled gardens – too much reliance limits defensibility.
Validate product-market fit through client retention and realistic roadmaps.
Involve an experienced AdTech sparring partner early – ideally already during target scouting and initial conversations. Early insight into market, product, and technology context avoids costly surprises and helps sharpen investment theses before the formal due diligence even starts.
If you are evaluating AdTech targets, involve polarisfactor early from target scouting to final due diligence + post merger integration. Leverage our 20+ years of AdTech expertise to stress-test market, product, and technology, identify hidden gems, and avoid costly surprises in M&A.
