Preparing for Technical Due Diligence: A Startup Founder's Guide — AuditFront Blog

What is technical due diligence?

Technical due diligence (tech DD) is a structured evaluation of a company’s technology assets, practices, architecture, team, and technical risks. It happens when an external party — typically an investor, acquirer, or strategic partner — wants to understand what they’re actually buying or investing in from a technology perspective.

Think of it as a technical health check. The examining party wants to know: is this technology sound? Can it scale? Are there hidden liabilities? Is the team capable of executing the roadmap? Are there security or intellectual property issues that could create problems later?

For founders, tech DD can feel invasive. Someone is going to look at your codebase, question your architecture decisions, assess your team’s capabilities, and quantify your technical debt. But understanding what evaluators look for — and preparing accordingly — can be the difference between a deal that closes and one that dies in diligence.

When does tech DD happen?

Fundraising (Series A and beyond)

At seed stage, investors rarely conduct formal tech DD. They’re betting on the founding team and the market opportunity. Starting at Series A, and increasingly at later stages, institutional investors commission tech DD as part of their evaluation process. They want to validate that the technology works, scales, and can support the business plan.

Mergers and acquisitions

Tech DD is standard in any acquisition involving a technology company. The acquirer needs to understand integration complexity, hidden technical debt, security liabilities, and the quality of the engineering team they’re acquiring. In M&A, tech DD findings directly influence deal valuation and deal terms — material issues discovered during DD routinely lead to price reductions, earn-out structures, or walk-aways.

Strategic partnerships

When a large company considers a deep technical integration or white-label partnership with a startup, they often conduct a lighter form of tech DD. They need confidence that the technology is reliable, the architecture is compatible, and the company can support the partnership’s requirements.

IPO preparation

Companies approaching an IPO increasingly undergo tech DD as part of their pre-IPO readiness assessment. Underwriters and their advisors want to ensure there are no technology-related surprises that could affect the public offering.

What investors and acquirers actually look at

Tech DD evaluators typically assess seven core areas. Understanding these areas in advance lets you prepare strategically rather than reactively.

1. Code quality and engineering practices

Evaluators examine your codebase for:

Code organization and readability — is the code well-structured, consistently styled, and understandable by someone other than the original author?
Test coverage — what percentage of the codebase has automated tests? Are the tests meaningful or just testing trivial paths?
CI/CD pipeline — do you have automated build, test, and deployment processes? How frequently do you deploy?
Code review practices — are pull requests reviewed before merging? Is there a meaningful review process or rubber-stamping?
Documentation — is there enough documentation for a new engineer to understand the system? Not excessive docs, but READMEs, architecture diagrams, and API documentation.
Dependency management — are dependencies up to date? Are there known vulnerabilities in your dependency tree?

Evaluators are not looking for perfect code. They are looking for evidence of disciplined engineering practices and the absence of fundamental structural problems.

2. Architecture and scalability

This is often the area where the most significant risks surface:

System architecture — is the architecture appropriate for the current scale and the projected growth? Is it a monolith, microservices, or something in between? Is the choice intentional and justified?
Database design — is the data model well-designed? Are there obvious performance problems (missing indexes, N+1 queries, unbounded growth tables)?
Scalability constraints — what happens at 10x current load? 100x? Are there bottlenecks that require re-architecture to solve?
Infrastructure — cloud vs. on-premise, infrastructure-as-code, disaster recovery, and multi-region capability
Technology stack choices — are the technologies well-suited to the problem? Are there concerning choices (obscure frameworks, deprecated technologies, vendor lock-in)?
Third-party dependencies — are you critically dependent on specific vendors? What happens if a key vendor changes pricing or discontinues a service?

Evaluators understand that startups take architectural shortcuts. What concerns them is when those shortcuts create fundamental constraints on the business’s ability to grow.

3. Security posture

Security is a deal-critical area. A serious security vulnerability or a history of breaches can derail an acquisition or investment:

Authentication and authorization — are these implemented correctly? Is there role-based access control? Is MFA available and enforced?
Data encryption — is data encrypted at rest and in transit? Are encryption standards current?
Vulnerability management — do you scan for vulnerabilities? How quickly are critical vulnerabilities patched?
Security testing — have you conducted penetration tests? What were the findings and were they remediated?
Incident response — do you have an incident response plan? Have you tested it?
Compliance certifications — ISO 27001, SOC 2, GDPR compliance — these provide independent validation of your security practices
Data handling — how is personal data collected, stored, processed, and deleted? Are there privacy risks?

If you hold an ISO 27001 certification or SOC 2 attestation, these serve as strong evidence of a mature security posture and significantly reduce the security-related risk in the evaluator’s assessment.

4. Technical debt

Every startup has technical debt. Evaluators don’t expect zero debt — they expect you to know about it and have a plan:

Identified tech debt — what shortcuts have been taken? Are they documented?
Impact assessment — which technical debt items affect scalability, security, or development velocity?
Remediation roadmap — is there a prioritized plan to address the most impactful debt?
Debt trajectory — is tech debt growing or being managed? Are you adding more debt than you’re paying off?

The worst outcome is for evaluators to discover significant technical debt that the engineering team either doesn’t know about or has been ignoring. Awareness and a plan are far more important than having zero debt.

5. Team and capabilities

Technology is ultimately built and maintained by people:

Team composition — do you have the right mix of skills for your technology stack and roadmap?
Key person dependencies — are there single points of failure? What happens if a specific engineer leaves?
Hiring and retention — what’s your engineering turnover? Are you able to attract and retain talent?
Engineering culture — how does the team make decisions? Is there a culture of quality, or is it pure speed at all costs?
Knowledge distribution — is knowledge shared across the team, or siloed in individual heads?

Key person risk is one of the most common findings in startup tech DD. If one engineer built the entire system and no one else fully understands it, that is a material risk that evaluators will flag.

6. Intellectual property

IP is a core component of technology company valuation:

IP ownership — does the company own all its technology? Are there contributions from contractors or open-source contributors with unclear licensing?
Employee IP assignments — do all engineers have signed IP assignment agreements?
Open-source compliance — are you using open-source software in compliance with its licenses? Are there copyleft licenses (GPL, AGPL) that could affect your ability to keep code proprietary?
Patent portfolio — if applicable, what patents do you hold, and are there potential infringement issues?
Trade secrets — are proprietary algorithms and data adequately protected?

Open-source license compliance is a common area where startups are caught off guard. Using AGPL-licensed libraries in a SaaS product, for example, can create obligations that conflict with your business model.

7. Data assets and infrastructure

Data quality — is your data clean, well-structured, and reliable?
Data governance — who owns the data? How is access controlled?
Infrastructure reliability — what is your uptime history? Do you have monitoring and alerting?
Backup and recovery — are backups tested? What is your Recovery Time Objective (RTO) and Recovery Point Objective (RPO)?
Operational maturity — do you have runbooks, on-call procedures, and incident management processes?

Red flags that kill deals

Based on common tech DD findings, here are the issues that most frequently lead to deal repricing, restructuring, or failure:

Undisclosed security breaches. A history of breaches that was not disclosed during the process is a trust issue as much as a technical one. Deals rarely survive this.
Fundamental scalability limitations. If the architecture cannot support the projected growth without a complete rewrite, the investment thesis breaks. A “rewrite required” finding can reduce valuations by 20 to 40 percent.
Critical key person dependency. If one person holds all the knowledge and there’s no documentation, the acquirer or investor is taking on enormous execution risk.
IP ownership gaps. Code written by contractors without proper IP assignment, or open-source license violations that could force open-sourcing of proprietary code, create legal liability.
No automated testing or deployment. Manual, undocumented deployment processes signal operational immaturity and create risk in the hands of a new owner.
Misleading technical claims. If the pitch deck describes “AI-powered” features and the DD reveals hardcoded rules and if/else statements, credibility collapses.
Data compliance failures. Processing personal data without proper GDPR or privacy compliance creates regulatory liability that transfers with the acquisition.
Excessive technical debt with no plan. Technical debt that threatens the product roadmap, with no awareness or remediation strategy, signals leadership that doesn’t understand its own technology.

How to prepare for tech DD

Start 3 to 6 months before you need it

Tech DD preparation should begin well before the process starts. Rushing to clean up your codebase, write documentation, and fix security issues in the weeks before DD produces shallow results that evaluators see through immediately.

Conduct a self-assessment

Run your own tech DD before someone else does. Walk through each evaluation area above and honestly assess your current state. Identify the issues that an external evaluator would flag, and address the most critical ones.

AuditFront’s tech DD self-assessment templates provide a structured framework for this evaluation, covering code quality, architecture, security, team, and IP across all the dimensions that evaluators examine.

Fix the critical issues first

You cannot fix everything. Prioritize based on deal impact:

Security vulnerabilities — fix critical and high-severity issues. Conduct a penetration test and remediate findings.
IP ownership — ensure all employees and contractors have signed IP assignment agreements. Audit open-source license compliance.
Key person risk — document critical systems, cross-train team members, and ensure no single point of failure exists for core technology.
Testing and CI/CD — if you don’t have automated tests and deployment, implement them. This signals engineering maturity more than almost anything else.

Build your documentation package

Prepare the materials that evaluators will request:

Architecture diagram — a clear, current diagram of your system architecture, including all services, databases, third-party integrations, and data flows
Technology stack overview — list of languages, frameworks, databases, infrastructure, and key third-party services
Development process documentation — how code is written, reviewed, tested, and deployed
Security overview — authentication model, encryption practices, vulnerability management process, compliance certifications, and pen test results
Team org chart — who does what, including reporting lines and areas of responsibility
Technical roadmap — what’s planned for the next 6 to 12 months, including tech debt remediation
Incident history — a summary of significant production incidents and how they were resolved
Third-party agreements — key vendor contracts, data processing agreements, and SLAs

Prepare your team

Tech DD involves interviews with engineers, not just documentation review. Prepare your team:

Brief engineers on what to expect — evaluators will ask about architecture decisions, code quality, deployment processes, and incident handling
Ensure engineers can articulate why decisions were made, not just what was built
Be honest about known issues — evaluators respect candor about technical debt far more than attempts to hide it
Designate a technical lead to coordinate the process and serve as the primary point of contact

Typical tech DD timeline

Phase	Duration	Activities
Scoping and preparation	1-2 weeks	Define scope, provide documentation package, set up access
Document review	1-2 weeks	Evaluator reviews architecture docs, codebase access, security reports
Technical deep dive	1-2 weeks	Code review, architecture assessment, team interviews
Findings and report	1-2 weeks	Evaluator compiles findings, risk assessment, recommendations
Total	4-8 weeks	Varies based on company size and scope

For a typical Series A or B investment, the process usually takes 3 to 5 weeks. For an acquisition, expect 4 to 8 weeks or more, especially if the target company has complex infrastructure or multiple products.

The self-assessment approach

You don’t need to wait for an investor or acquirer to benefit from tech DD. Running a self-assessment on a regular basis — annually or before major milestones — gives you several advantages:

Identify and fix issues before they become expensive. A scalability problem found during a self-assessment costs 10x less to fix than one found during DD, where it becomes a negotiation point.
Build a track record of improvement. Showing evaluators that you identified issues six months ago and have been systematically addressing them demonstrates maturity.
Reduce the timeline and friction of external DD. Companies that are well-prepared for DD complete the process faster, with fewer surprises and less disruption to the team.
Strengthen your negotiating position. When you know exactly what an evaluator will find, you can frame the narrative rather than reacting to findings.

AuditFront’s tech DD assessment framework is designed for exactly this purpose — a structured self-assessment that covers the same dimensions external evaluators examine, so you see what they’ll see before they do.

Common mistakes founders make

Waiting until DD starts to prepare. By the time DD begins, the clock is running and the evaluator forms early impressions quickly. Preparation months in advance yields vastly better results.
Trying to hide problems. Experienced evaluators can tell when code has been hastily cleaned up or when issues are being concealed. Transparency about known issues, paired with a remediation plan, builds trust.
Neglecting non-code aspects. Founders often focus on code quality while ignoring team dynamics, documentation, IP ownership, and operational maturity. Evaluators look at the full picture.
Over-engineering before DD. Refactoring your entire codebase to look impressive can backfire — it introduces new bugs, disrupts the team, and experienced evaluators recognize the pattern.
Not briefing the team. Engineers caught off guard in interviews give worse impressions than engineers who understand the process and can speak confidently about their work.

Get started

Technical due diligence doesn’t have to be a stressful, reactive experience. Founders who prepare systematically — understanding what evaluators look for, conducting honest self-assessments, and addressing critical gaps early — consistently achieve better outcomes in fundraising, M&A, and partnerships.

AuditFront provides structured self-assessment templates for technical due diligence that cover code quality, architecture, security, team, and IP — the same areas professional evaluators examine. Run a self-assessment today and see your technology through an investor’s eyes.

Start your free tech DD assessment and prepare before the clock starts.