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Investors love big ideas. But they need proof that the technology underneath can actually handle the job. A flashy pitch means nothing if the systems can’t keep up when it matters. That’s where technical due diligence steps in. It’s the ultimate gut check—does the tech hold up, or is it all talk?
Think about it. If you’re buying a house, you don’t just look at the paint job. You check the plumbing and the foundation.
Done right, technical due diligence isn’t just about finding problems. It’s about proving you’re ready. Ready for growth, ready to scale, ready to meet challenges head-on. It’s a chance to own the narrative and show you’ve built something solid.
What Is Technical Due Diligence?
Technical due diligence is a deep dive. Stakeholders are going to look at your codebase: is it a mess, or can someone else actually work with it?
They’ll check if your systems can handle growth. Are you ready to scale? What about security? Investors aren’t looking for vague promises—they want to see real protections in place.
Founders and CTOs tell the story—how the tech fits into the bigger plan. Developers walk through the nuts and bolts. They’re the ones showing how the product works day-to-day.
Investors are on the other side, asking the hard questions: can this scale? What’s the risk? And then there are auditors—third parties who stay unbiased as they examine under the hood.
Why Is Technical Due Diligence Crucial for Startups?
At the end of the day, technical due diligence builds trust. For investors, it’s proof they’re putting their money into something that works. For founders, it’s a moment to fix what’s broken before it’s too late.
It’s also about long-term potential. Startups with strong, scalable technology attract better deals. Investors are more likely to offer favorable terms if they see a team that’s proactive, not reactive. But it’s not just about winning money—it’s about building credibility.
When done right, technical due diligence doesn’t just validate the technology—it validates the team behind it. The process shows you’re serious about what you’ve built and have thought through how it will grow. That kind of confidence is hard to fake and impossible to ignore.
When Should You Think About Technical Due Diligence?
Every startup faces moments when its technology gets put to the test. These are the times when technical due diligence isn’t optional—it’s critical.
Whether you’re pitching to investors, preparing for a big launch, or merging with another company, the stakes are too high to skip this step. Here’s a closer look at when it becomes essential:
Before Raising Money
Investors don’t just want ideas—they want confidence. At early stages, they’re betting on potential. But as funding rounds progress, they’ll dig deeper. Can your systems handle rapid growth? Are they secure enough to scale without breaking?
Before a Merger or Acquisition
Selling your company? The buyer will want to know exactly what they’re getting. A thorough review exposes risks in your infrastructure and uncovers hidden technical debt. It’s not about catching problems—it’s about showing that you’re prepared for the next step.
When Partnering with Others
Partnerships can fall apart if the technology doesn’t align. Imagine systems that don’t sync or processes that clash—it’s a disaster waiting to happen. A technical review prevents these headaches by ensuring compatibility from the start.
Ahead of a Major Launch
A product launch is a high-pressure moment. Can your systems handle a surge in traffic? Will your infrastructure hold steady under heavy use? These aren’t questions you want to leave unanswered. Due diligence helps you prepare for success, not just hope for it.
During Big Changes
Switching to new technologies or pivoting your business model is exciting—but risky. Without a clear understanding of the challenges ahead, you could stumble. A technical review maps out potential obstacles so you can plan effectively and avoid disruptions.
Common Red Flags in Technical Due Diligence
We reached out to industry experts to understand the most critical issues that arise during technical due diligence. Here’s what they shared:
Documentation Disparity
If a company’s user guides and API documentation are spotless, but its internal records are scattered or incomplete, that’s a warning sign. Mike Sadowski, Founder & CEO of Brand24, points out that this imbalance often masks larger issues, like unchecked technical debt or a development process that’s out of touch with real user needs.
Early Overengineering
Startups sometimes mistake complexity for readiness. Ben Miller, COO of Undetectable AI, has seen companies invest in overbuilt infrastructure far too soon. Instead of responding to what’s essential to validate their market, they sink time and resources into setups they don’t yet need.
Integration Blindspot
Many companies overlook what Thomas Franklin, CEO of Swapped, calls "technology-stack integration readiness."
A system’s inability to work well with others can limit its potential. Clunky APIs or closed platforms might stall partnerships or growth, especially in fintech where collaboration is important.
Technical Debt
Every company has some level of technical debt, but what matters is how they manage it. Jon Morgan, CEO, Business and Finance Expert of Venture Smarter, explains that ignoring or failing to plan around technical debt is a bigger issue than the debt itself. A strategy to address inefficiencies is key.
Data Governance Gap
Jacob Kalvo, CEO of Live Proxies, highlights a recurring problem: startups rushing functionality to market without a plan to manage data. Without lifecycle practices in place, scalability and compliance issues are bound to surface.
Individual Dependency
If only one person knows how a critical system works, that’s a major vulnerability. Dima Eremin, CEO of BluedotHQ, warns against this “key-person dependency.” Companies need to distribute knowledge to avoid dependency pitfalls.
Decision Paralysis
John Beaver, Founder of Desky, identifies another trap: decision paralysis. Teams that get stuck debating every detail often lose momentum. The inability to make timely choices can undermine progress just as much as a bad call.
Missing Testing Foundation
Skipping automated testing is risky. Without testing in place, product updates are more likely to introduce bugs and instability. Beyond fixing errors, testing reflects a disciplined approach to building software.
Weak Security Practices
Security issues come in many forms: poor encryption, improper access, or the lack of regular audits. Each of these gaps puts the company at risk. Addressing them isn’t about avoiding problems—it’s about building trust.
How Technical Due Diligence Really Works
Every evaluator approaches technical due dilgence differently, but here’s a general idea of what happens:
1. Getting a Sense of Things
Evaluators need context. They look at system diagrams, documentation, and roadmaps to figure out what the technology is supposed to do. This stage is like heading into unknown terrain with a map—helpful, but not enough to know the whole story.
2. Scrutinizing the Code
Evaluators look for consistency, logic, and maintainability. What happens if a key team member leaves? Can someone else pick up where they left off? Complicated code can cause problems.
3. Searching for Weak Points
Weak APIs, sloppy data handling, or missing encryption—these are all major security issues. If you’re dealing with sensitive data, evaluators will want to see policies for how you manage that data.
4. Testing for Growth
Load tests, architecture reviews, and database checks all come into play. If a system can’t handle more users or data without glitching, it’s a problem waiting to happen. Evaluators look for signs that the technology can scale with the business.
5. Looking at the People Behind the Tech
Technology doesn’t run itself. The team matters. Evaluators pay attention to workflows, version control rules, and deployment methods. Are they efficient? Do they work well together? A solid team can turn a shaky system into a strong one, but even the best technology cannot function with a disorganized team.
Technical Due Diligence Checklist
Here’s a quick-reference guide to assessing a startup’s technology:
- Code Quality: Is the codebase clear, consistent, and maintainable? Identify technical debt and test coverage gaps.
- Security: Are access controls and encryption solid? Review any past security issues.
- Open Source Use: Check licenses for compliance and ensure dependencies are supported.
- Scalability: Can the system handle growth? Evaluate cloud, database, and network readiness.
- DevOps: Are CI/CD pipelines efficient and reliable for deployment?
- Documentation: Is technical knowledge documented and easy to share?
- IP Protection: Are trademarks and proprietary technologies safeguarded?
- Business Continuity: Are recovery plans and backups in place for disruptions?
- Third-Party Tools: What’s the plan if critical tools or APIs fail?
How Codacy Supports Technical Due Diligence
Technical due diligence can feel like a mountain to climb but Codacy makes it easier. The platform reviews codebases and flags errors, technical debt, and inconsistencies. Developers can use these insights to tidy up their code and ensure it’s polished for external reviews.
Codacy also uses security checks throughout the development pipeline. Scanning for vulnerabilities in the code and external dependencies allows teams to resolve issues before they escalate. This proactive approach helps startups present their systems as both secure and dependable.
When integrated into daily workflows, Codacy doesn’t prepare teams for just due diligence—it keeps them ready at all times. Continuous fixes and improvements make the process smoother and faster, giving startups more time to focus on what’s next.
Get your codebase investor-ready with Codacy. Start a free trial!
