Khaled Azar 
Open source license due diligence SaaS founders face is usually not about whether they used open source. Almost every software company does. The issue is whether the seller can prove what is in the product, which licenses apply, who owns custom code, and which findings need cleanup before a buyer gets nervous.
Black Duck’s 2026 OSSRA report found that 68% of audited codebases contained open source license conflicts, up from 56% the prior year. The same report says audited codebases contained 581 vulnerabilities on average. That is why buyers scan code. They are not looking for perfection. They are looking for hidden obligations that can slow close or shift risk back to the seller.
What open source license due diligence SaaS buyers test
The scan is only the start. The buyer still has to trust the story around the scan.
Open source due diligence starts with a software composition analysis, often called SCA. Tools scan the code base, identify open source packages, map known licenses, flag known vulnerabilities, and help create a software bill of materials. The Linux Foundation OpenChain M&A checklist frames this as an assessment of open source practices, not just a list of files.
A buyer wants four answers. What open source is in the product? What licenses apply? Are any obligations inconsistent with the company’s commercial model? Can the seller prove ownership of the proprietary code wrapped around those components?
Black Duck’s 2026 OSSRA findings reported open source license conflicts in 68% of audited codebases, the highest level in the report’s history.
This connects directly to technical due diligence for SaaS sellers. Buyers do not only inspect architecture, uptime, and code quality. They inspect whether the company has the right to sell the software it claims to own.
Which license issues actually matter before a sale
Not every license finding is a red alert. Permissive licenses often create attribution or notice obligations that can be cleaned up. The harder issues are copyleft obligations, unknown licenses, copied code with no provenance, modified open source that was never tracked, and packages that ship inside customer facing software without documentation.
Most founders do not need to become lawyers. They need to separate noise from deal risk before the buyer does it for them. A missing notice file is different from uncertainty over whether proprietary source code must be disclosed. An outdated package is different from a dependency that no one can map to a product feature.
| Finding | Buyer reaction | Seller cleanup |
|---|---|---|
| Missing notices | Usually fixable | Add notices and attribution records |
| Unknown license | Needs explanation | Replace, document, or get counsel review |
| Copyleft in shipped product | Potential deal risk | Analyze linking, distribution, and obligations |
| No contributor records | Ownership concern | Collect contractor and employee assignments |
| Known critical vulnerability | Security concern | Patch, document mitigation, or isolate usage |
Morgan Lewis wrote in June 2026 that open source inquiry in M&A often covers license compliance, policy, governance, and remediation. That is the right frame. A clean answer is not “we ran a scan.” A clean answer is “we ran a scan, reviewed the findings, fixed the material issues, and documented what remains.”
The seller cleanup path for open source license due diligence
Do not wait for the buyer’s engineer to build your dependency inventory for you.
Start with an inventory. Pull dependencies from package managers, containers, repositories, build scripts, mobile apps, front end assets, and any code that ships to customers. Include libraries, frameworks, plugins, snippets, and modified open source.
Then match each component to a license, version, use case, and product area. Mark whether it is used internally, shipped to customers, embedded in a product, modified, or only used for development. That context changes the risk discussion.
Next, resolve ownership gaps. Confirm employee invention assignments, contractor IP assignments, agency agreements, code contributions from advisors, and any old founder side projects that were copied into the product. This is where deals slow down. The license scan may look manageable, but the buyer’s counsel asks who wrote a module, and no one can find the signed assignment.
Your goal is not a perfect code base. Your goal is a defensible story: inventory complete, ownership clear, material findings reviewed, and remediation underway before LOI.
How to stage open source evidence in the data room
Do not give a buyer raw scan output with no narrative. Raw findings invite worst case assumptions. Build a short license summary, a dependency export, a remediation tracker, signed IP assignment files, open source policy if you have one, and counsel notes for anything material.
Place the summary near your technical documents in the data room. Pair it with the same discipline you use for M&A data room preparation: clean folders, current files, clear labels, and no mystery documents that force the buyer to guess.
In one anonymized diligence pattern, a seller had a solid product but no clean record of contractor code ownership and no dependency inventory. The buyer’s technical team had to ask basic ownership questions after LOI. That shifted the tone from product excitement to risk control. The deal did not fail because of open source. It slowed because the seller looked unprepared.
When to bring in legal or engineering help
Bring in legal help when a finding could affect proprietary source code rights, customer contract promises, distribution obligations, or indemnity exposure. Bring in engineering help when you cannot map a package to production usage, when a vulnerable component is embedded deeply, or when replacing it would affect uptime or customer workflows.
This is not just a legal cleanup exercise. It also affects the buyer’s confidence in the team. A seller who can explain license scope, product usage, remediation timing, and residual risk sounds in control. A seller who says “our developers handled that” invites more diligence.
The same point applies when you negotiate the letter of intent from the seller side. If there is a known material open source issue, decide what to disclose, when to disclose it, and how it will be handled before exclusivity gives the buyer more room to retrade.
Frequently Asked Questions
What is open source due diligence?
Open source due diligence is the review of open source components, licenses, vulnerabilities, ownership records, and software governance before a transaction. In a SaaS sale, it helps the buyer verify what code is in the product and whether the seller can transfer it cleanly.
Can open source licenses affect an acquisition?
Yes. Open source licenses can affect an acquisition when license obligations conflict with how the SaaS product is distributed, sold, or embedded. Most findings are fixable, but unresolved copyleft, unknown license, or ownership issues can delay close or change deal terms.
What is software composition analysis?
Software composition analysis is a scan of open source and third party components in a code base. SCA tools identify packages, versions, licenses, known vulnerabilities, and dependency relationships so buyers and sellers can review risk.
What open source licenses are risky in M&A?
Risk depends on how the component is used, but strong copyleft licenses, unknown licenses, modified components, and code copied without provenance usually need closer review. The legal question is not the license name alone. It is the obligation created by product usage and distribution.
How do you prepare IP for due diligence?
Prepare IP for due diligence by building a dependency inventory, mapping licenses, fixing material findings, collecting employee and contractor assignments, documenting third party code, and staging the evidence in the data room before buyers ask.
Next Steps
If your SaaS product has years of dependencies, contractor code, or undocumented cleanup work, get the IP risk mapped before buyers start scanning.