Before an investor writes a check, someone on their side (or an independent firm they hire) will look under the hood of your technology. This is technical due diligence, and it can kill a deal faster than bad financials.
We have been on both sides of this process. We have built systems that passed due diligence for funded startups, and we have been hired by investors to evaluate startups they were considering backing. Here is what gets checked, what raises red flags, and how to prepare before the inspection starts.
What Technical Due Diligence Actually Covers
Due diligence is not a code review. It is a comprehensive assessment of whether your technology can support the business you are promising investors. The evaluation typically covers six areas.
1. Code Quality and Architecture
Investors want to know: is this codebase an asset or a liability?
What they check: Code organization, naming conventions, consistency, and documentation. Is the architecture appropriate for the current scale and the projected scale? Are there obvious architecture mistakes that will require a rewrite? Is the code DRY (do not repeat yourself) or is the same logic copy pasted in 50 places? Is there meaningful test coverage?
What passes: A clean, well organized codebase with consistent patterns, some automated tests, and an architecture that matches the current stage. Perfection is not expected at Series A. What is expected is evidence of technical intentionality, decisions were made deliberately, not randomly. The Traderly codebase passed due diligence because every architectural decision was documented and defensible, even when the code itself was still early stage.
What fails: Spaghetti code with no discernible architecture. No tests at all. Business critical logic scattered across the codebase with no documentation. An architecture that was clearly "we will fix it later" from day one.
2. Infrastructure and DevOps
How the software gets built, deployed, and monitored.
What they check: Is there a CI/CD pipeline, or does someone manually FTP files to a server? Are environments separated (development, staging, production)? Is infrastructure reproducible or is it a snowflake server that no one knows how to recreate? Are there automated backups? Is there monitoring and alerting?
What passes: Automated deployments via CI/CD, environment separation, automated database backups, basic monitoring with error tracking. Again, enterprise grade infrastructure is not expected at early stages. But evidence that the team takes operational reliability seriously is non negotiable.
What fails: No CI/CD, production deployments done manually, no staging environment, no backups, no monitoring. This signals a team that ships fast and fixes later, which investors know eventually becomes "ships fast and breaks permanently."
3. Security Posture
A data breach after funding is the worst possible outcome for an investor.
What they check: Authentication and authorization patterns, data encryption (at rest and in transit), API security, dependency vulnerabilities, access controls, and secrets management. For regulated industries (healthcare, finance), compliance with applicable frameworks (HIPAA, SOC 2, PCI DSS).
What passes: HTTPS everywhere, hashed passwords, role based access controls, secrets stored in environment variables (not hardcoded), dependencies reasonably up to date, and a documented process for handling security issues.
What fails: Passwords stored in plaintext, API keys committed to the repository, no input validation, SQL injection vulnerabilities, admin panels accessible without authentication. Any of these is often a deal killer, not because it cannot be fixed, but because it signals a team that does not think about security at all.
4. Scalability Assessment
Can the technology support the growth the business plan projects?
What they check: Database query performance, API response times, caching strategy, connection pooling, and whether the architecture can scale horizontally. They will look at current usage metrics and extrapolate: if you have 1,000 users today and project 100,000 in 18 months, can the system handle that without a rewrite?
What passes: An architecture that can scale with reasonable effort. This does not mean it needs to handle 100K users today. It means the path from 1K to 100K is clear and does not require replacing core components. Proper database indexing, query optimization, and a caching strategy (even a simple one) demonstrate forethought.
What fails: N+1 queries everywhere, no database indexes beyond primary keys, synchronous processing of tasks that should be async, and monolithic designs that cannot be decomposed. Basically, anything that would require a ground up system architecture rebuild to support the projected growth.
5. Technical Debt Inventory
Every codebase has technical debt. Investors want to know how much, and whether the team is aware of it.
What they check: Known issues tracked in a backlog, TODO comments in the code, deprecated dependencies, hard coded values, and shortcuts that will need to be addressed. The question is not "is there debt?" (there always is), but "does the team know about it and have a plan?"
What passes: A documented list of known technical debt with a prioritized plan for addressing it. Honest acknowledgment of shortcuts taken to ship faster, with a clear explanation of when and how they will be resolved. This is actually a positive signal, it shows the team is pragmatic and self aware.
What fails: A team that claims to have no technical debt (delusional or dishonest), massive undocumented debt discovered during the review, or debt in critical paths (payments, security, data integrity) that poses an immediate business risk.
6. Team and Knowledge Distribution
Is the technology dependent on a single person?
What they check: How many people understand the core system? Is there documentation? Can the team onboard a new developer without a month of hand holding? What happens if the CTO leaves?
What passes: At least 2 people understand every critical system. Deployment does not require specific individuals. Documentation exists for architecture decisions, setup instructions, and operational procedures. The codebase is approachable for a competent developer who is new to the project.
What fails: A single developer who built everything, has no documentation, and is the only one who can deploy. Investors call this "key person risk," and it is one of the most common technical red flags. If your lead developer gets hit by a bus, can the company continue to operate?
How to Prepare
If you are approaching a funding round, start preparing for technical due diligence at least 2 to 3 months before.
Clean up the obvious issues. Remove hardcoded secrets, update vulnerable dependencies, add basic test coverage for critical paths, and document your architecture. You do not need perfection. You need evidence of professionalism.
Create an architecture document. A 2 to 3 page document explaining your system architecture, technology choices (and why), database schema overview, deployment process, and known technical debt. This proactively answers 50% of due diligence questions and signals maturity.
Set up basic DevOps. If you are still deploying manually, spend a week setting up CI/CD, automated testing, and monitoring. This is a small investment that dramatically changes the perception of your technical maturity. Our cloud and DevOps team can set this up in days if you are short on time.
Run your own audit. Before an investor's team looks at your code, have someone external review it first. Fix the issues they find. This is exactly like getting a home inspection before listing your house. You would rather find the problems yourself than have a buyer use them as leverage.
What Investors Do Not Care About
Bleeding edge technology. Investors do not care if you are using the latest framework. They care that your technology choices are defensible and that you have developers who know them well. Boring, proven tech is a positive signal.
100% test coverage. No early stage startup has comprehensive test coverage, and investors know this. What they want to see is that you test the things that matter: payments, authentication, and data integrity.
Perfect code. Some rough edges are expected and even desirable at the early stage, they show you prioritized shipping over polish. The concern is not imperfect code. It is code that shows a fundamental lack of engineering discipline.
The Cost of Failing Due Diligence
A failed technical due diligence does not always kill the deal, but it almost always costs you money. We have seen findings reduce valuations by 15 to 30 percent, representing hundreds of thousands in lost equity. Even when the deal survives, investors add protective terms or require fixes before closing, burning 2 to 3 months of runway while competing startups move forward.
Build for Due Diligence from Day One
The best time to prepare is before you write the first line of code. Build with clean architecture, automated testing, and documentation as defaults, not afterthoughts. Teams with good engineering practices consistently ship faster because they spend less time debugging and reworking.
If you have a round coming up and need to get your technology in shape, reach out to our team. We help startups build investor ready software from the start, and we help existing startups clean up before the due diligence clock starts ticking.