Technical Due Diligence: What Investors and Acquirers Look For

What Technical Due Diligence Actually Covers

When an investor or acquirer orders technical due diligence software review, they're paying someone, often us, to answer one question: is this codebase and team an asset or a liability? That breaks down into concrete areas — code quality and architecture, test coverage, infrastructure and deployment practices, security posture, technical debt, and how dependent the whole system is on one or two individuals. It's not a code style review. It's a risk assessment that directly affects valuation and deal terms.

We've run this process both for founders raising a round who want to know what a reviewer will find before they find it themselves, and for acquirers doing the actual diligence on a target company. The questions are the same either way; only the incentive differs. A founder wants advance warning so they can fix or explain issues before they become a negotiating chip. An acquirer wants an honest account of what they're actually buying.

The Bus Factor Problem

The single most common finding in our due diligence reports is a dangerously low bus factor — a system where one engineer, often a departed co-founder, is the only person who understands how a critical piece works. No documentation, no one else with production access, tribal knowledge that lives in one person's head. Acquirers treat this as a direct risk to the value of the deal, because it means the acquired asset might stop functioning the day that one person doesn't answer their phone.

The fix is rarely dramatic — it's usually a few weeks of deliberate knowledge transfer: pairing sessions, written runbooks, shared production access, a second person who's actually deployed the app end to end rather than just read the code. Founders who do this before diligence starts consistently score better, not because the underlying system changed, but because the risk of it breaking without anyone able to fix it went down.

Code Quality Is Read as a Proxy for Discipline

Reviewers aren't grading your code against an academic standard — they're using code quality as a signal for whether the team that built it made disciplined decisions under pressure. A codebase littered with commented-out code, no tests, inconsistent patterns, and obvious shortcuts tells a due diligence team that corners have been cut everywhere, not just in the file they're looking at. That inference, fair or not, shapes the rest of the review and the eventual number attached to it.

Infrastructure and Security Get Disproportionate Weight

We weight infrastructure and security heavily because they're where undisclosed liabilities hide. Are secrets committed to the repo? Is there a real staging environment or does every deploy go straight to production? Is there any evidence a security review has ever happened? Are backups tested, or just configured and assumed to work? These questions surface real financial exposure — a data breach discovered post-acquisition is a very different problem than a messy but working codebase.

We also look specifically at how deploys happen — is there a documented, repeatable process, or does shipping a change require one specific person doing one specific sequence of manual steps they've never written down? This sounds like a small operational detail until you realize it's often the single point of failure that determines whether a company can keep functioning through a leadership transition, which is precisely the scenario an acquisition creates.

Technical Debt Isn't Automatically Disqualifying

Contrary to what founders expect, technical debt itself rarely kills a deal — every real product accumulates it. What matters is whether the team knows where it is, has a plan for it, and hasn't let it block adding features or fixing bugs. A founder who can walk through their technical debt calmly and specifically is in a completely different position than one who's never actually looked at it.

We deliver every diligence report the same way regardless of who commissioned it: specific findings, ranked by how much they actually affect risk, with a plain-language explanation of why each one matters. A report that just lists forty issues without prioritization is nearly as useless to a founder as no report at all, because it gives them no way to decide what to fix first with the time they actually have before a deal closes.

The founders who handle this best keep something as simple as a running list — a shared document noting what's fragile, what's a workaround, and what would need to change to scale further. It costs almost nothing to maintain and it changes the entire tone of a diligence conversation, because it signals the team understands their own system rather than being surprised by a reviewer's questions.

Technical due diligence isn't grading your code. It's pricing your risk.

How Founders Should Prepare

Before a raise or an exit conversation, run your own internal audit: document the architecture, make sure more than one person can deploy to production, fix or at least catalog the worst technical debt, and get a real security review done. None of this is about making the code perfect — it's about making sure the first time anyone finds a serious issue is when you tell them, not when their reviewer does.

For the full picture of how we run engagements, see our delivery process.