Technical Due Diligence: What Investors Actually Look For

Whether you are raising a Series B or preparing for acquisition, technical due diligence is coming. The process can feel invasive and stressful, but understanding what evaluators look for helps you prepare and perform.

I have been on both sides of the table. Here is what actually matters.

The Four Pillars of Technical Due Diligence

1. Architecture and Scalability

What they assess:

• Can the system handle 10x current load?
• Are there single points of failure?
• Is the architecture appropriate for the business stage?
• How much technical debt exists, and is it being managed?

Red flags:

• Monolithic architecture with no path to decomposition
• No caching strategy
• Single-region deployment with no DR plan
• Core business logic in stored procedures

Green flags:

• Clear architectural diagrams and documentation
• Evidence of load testing and capacity planning
• Microservices or modular monolith with clear boundaries
• Multi-region or multi-AZ deployment

2. Engineering Team and Practices

What they assess:

• What is the team composition and experience level?
• How is code reviewed and deployed?
• What is the testing strategy?
• How do they handle incidents?

Red flags:

• Single points of knowledge (one person understands critical systems)
• No code review process
• Manual deployments to production
• No monitoring or alerting

Green flags:

• Balanced team with senior leadership and growth potential
• Automated CI/CD pipelines
• Comprehensive test coverage (70%+ for critical paths)
• Documented incident response and post-mortems

3. Security and Compliance

What they assess:

• What is the security posture?
• How is customer data protected?
• What compliance certifications exist?
• How are vulnerabilities managed?

Red flags:

• No encryption at rest or in transit
• Shared credentials or hardcoded secrets
• No security certifications (SOC2, ISO 27001)
• Unpatched vulnerabilities in production

Green flags:

• SOC2 Type II certification
• Regular penetration testing
• Automated vulnerability scanning
• Clear data classification and handling policies

4. Product and Technology Strategy

What they assess:

• Is technology aligned with business strategy?
• What is the product roadmap and its feasibility?
• How is product development prioritized?
• What is the build vs buy philosophy?

Red flags:

• Technology investments not aligned with business goals
• Unrealistic roadmap commitments
• No clear prioritization framework
• NIH syndrome (rebuilding everything in-house)

Green flags:

• Clear technology roadmap tied to business objectives
• Evidence of successful feature delivery
• Pragmatic use of third-party services
• Data-driven prioritization

Preparing for Due Diligence

Start preparing 6-12 months before you expect to need it:

Documentation Sprint

Create or update:

• Architecture diagrams (current state and target state)
• System inventory and dependencies
• Security policies and procedures
• Incident response plan
• Business continuity plan

Technical Debt Inventory

Document your technical debt:

• What is it?
• Why does it exist?
• What is the risk?
• What is the remediation plan?

Investors expect technical debt. They do not expect you to be surprised by it.

Metrics Dashboard

Be ready to show:

• Deployment frequency
• Lead time for changes
• Mean time to recovery
• Change failure rate
• System uptime and availability
• Test coverage
• Vulnerability remediation time

Clean Up Quick Wins

• Remove unused code and dependencies
• Update outdated packages
• Fix high-severity security vulnerabilities
• Document undocumented systems

During the Process

What to Expect

• Documentation review: 1-2 weeks of async document sharing
• Technical interviews: 3-5 hours with architects and senior engineers
• Code review: Sample review of critical systems
• Infrastructure review: Cloud account access or guided walkthrough
• Report delivery: 1-2 weeks after interviews

How to Handle It

Be honest. Evaluators can smell BS. If something is broken, say so and explain your plan to fix it.

Show self-awareness. Demonstrate that you understand your weaknesses and have plans to address them.

Highlight velocity. Show how quickly you ship, learn, and improve. Growth potential matters more than current perfection.

Prepare your team. Brief engineers who will be interviewed. They should understand the business context, not just the technical details.

After the Report

You will receive a report with findings categorized by severity. Common outcomes:

• No significant findings: Proceed with deal
• Minor findings: Proceed with remediation commitments
• Major findings: Price adjustment or deal restructuring
• Critical findings: Deal may be at risk

Work with your counsel to understand how findings affect deal terms and negotiate appropriately.

The Bottom Line

Technical due diligence is not a test you pass or fail. It is a conversation about risk and opportunity. The companies that perform best are the ones that know themselves: their strengths, their weaknesses, and their plans for improvement.

Start preparing now. The work you do to prepare for due diligence is the same work that makes your engineering organization stronger.