Technical Due Diligence: What Investors Actually Check

Technical due diligence happens after investors are interested and before they wire money. It's the part where someone technical looks under the hood to verify that your product is actually built on solid ground.

Most founders don't think about this until it's too late. They're scrambling to clean up code or explain architectural decisions during an already stressful fundraising process. The better approach: understand what investors check and address it before you're in the hot seat.

What Technical Due Diligence Covers

Technical DD isn't just a code review. It's a holistic evaluation of your technical foundation, team, and practices.

The Five Areas of Examination

• Codebase quality: Is the code maintainable, readable, and reasonably well-structured?
• Architecture decisions: Do your technical choices make sense for your scale and goals?
• Security posture: Are you handling user data responsibly?
• Engineering practices: How does your team build and ship software?
• Technical team: Who built this and can they continue building it?

Codebase Evaluation

The codebase itself gets direct examination. Investors or their technical consultants will actually look at your code.

What They're Looking For

• Consistency: Does the codebase follow consistent patterns and conventions?
• Readability: Can a new developer understand what's happening?
• Test coverage: Are critical paths tested? Any testing at all?
• Documentation: Is there enough context for someone new to contribute?
• Dependencies: Are you using maintained libraries with reasonable update practices?

Red Flags in Code

• No version control history
• Massive files doing everything
• Duplicated code everywhere
• Hardcoded credentials
• No error handling
• Outdated dependencies with known vulnerabilities

Security Assessment

Security gets increasing attention in due diligence. Data breaches are expensive and damaging to reputation.

Minimum Security Expectations

• Authentication done properly using established libraries
• Encrypted data in transit (HTTPS everywhere)
• Encrypted data at rest for sensitive data
• Access controls with role-based permissions
• Secrets management (API keys not in code)
• Basic audit logging

Engineering Practices

How your team works matters as much as what you've built.

Signals of Maturity

• Documented processes
• Reasonable branching strategy
• Some automated testing
• Quick deployment capability
• Monitoring in place

Red Flags That Kill Deals

Some findings are deal-breakers:

• Founder doesn't understand the codebase: If a technical founder can't explain their own code, that's concerning
• IP issues: Code that isn't clearly owned by the company
• Undisclosed contractors: Claiming to have built it when outsourced
• Security disasters: Active breaches, credentials exposed, user data unprotected
• Unrepairable architecture: Systems so poorly built that they need complete replacement

Preparing for Due Diligence

Don't wait until investors ask. Prepare your technical foundation before fundraising.

Documentation to Have Ready

• Architecture overview explaining how your system works
• Technology choices and why you chose your stack
• Known technical debt and your plan to address it
• Security practices documentation
• Infrastructure overview

Key Takeaways

Technical due diligence evaluates whether your startup is built on solid technical ground.

• Five areas matter: Codebase, architecture, security, practices, and team
• Self-awareness is key: Knowing your weaknesses is better than having none
• Documentation helps: Written architecture and practices signal maturity
• Prepare before fundraising: Clean up obvious issues, document decisions, practice explanations
• Honesty works: Investors expect imperfection; they don't expect concealment

At NextBuild, we build MVPs that pass due diligence from day one—documented architecture, clean code practices, and security fundamentals baked in. If you're planning to raise and want your technical foundation solid, let's talk.