How to Prepare Your Startup for Acquisition: The Engineering Perspective

When a company gets acquired, the technology is a major part of the valuation.

What Acquirers Care About:
- Can the technology scale with their plans?
- Is the codebase maintainable?
- Are there hidden security or compliance risks?
- How dependent is the system on key people?
- How much will integration cost?

Engineering's Role in M&A:
- Prepare for technical due diligence
- Document architecture and decisions
- Clean up known issues
- Be available for deep technical discussions
- Help with integration planning

Why Engineering Preparation Matters:
A messy codebase or unknown security issues can kill a deal or significantly reduce valuation. We've seen acquisition prices reduced by 20-30% due to technical debt discovered in due diligence.

Every acquirer is different, but common themes emerge:

Must-Haves:
- No critical security vulnerabilities
- Clear IP ownership and licensing
- Core technology that works and can scale
- Team capable of maintaining the system
- No major regulatory compliance gaps

Nice-to-Haves:
- Modern technology stack
- Good test coverage
- Clean, documented code
- Efficient development processes
- Low technical debt

Deal-Breakers:
- Major security incidents hidden
- Unlicensed code or IP issues
- Single point of failure (one person)
- Regulatory non-compliance (HIPAA, SOC 2, etc.)
- Massive technical debt with no path forward

Start preparing well before you expect to exit:

12 Months Out:
- Audit your codebase and technical debt
- Begin SOC 2 or relevant compliance process
- Document architecture and key decisions
- Address any obvious security issues

6 Months Out:
- Complete compliance certifications
- Get a penetration test done
- Clean up code and reduce debt
- Prepare documentation package
- Identify key person risks

3 Months Out:
- Finalize all documentation
- Brief the team on what's coming
- Prepare data room with technical materials
- Practice the technical narrative

During Due Diligence:
- Be responsive and transparent
- Have technical lead available for calls
- Provide requested materials quickly
- Document all Q&A

Get your technical house in order:

Codebase Cleanup:
- Remove dead code and unused features
- Update dependencies to current versions
- Fix known bugs and issues
- Ensure consistent code style
- Add missing documentation

Architecture Documentation:
- Create clear system diagrams
- Document all integrations
- List all third-party dependencies
- Explain key architectural decisions
- Note known limitations and technical debt

Testing:
- Increase test coverage on critical paths
- Fix any broken or flaky tests
- Document testing strategy
- Show CI/CD pipeline working

Prepare these documents before due diligence:

Technical Documentation:
- [ ] System architecture overview
- [ ] API documentation
- [ ] Database schema documentation
- [ ] Deployment procedures
- [ ] Disaster recovery plan
- [ ] Security policies

Process Documentation:
- [ ] Development workflow
- [ ] Code review process
- [ ] Release procedures
- [ ] Incident response plan
- [ ] On-call procedures

Team Documentation:
- [ ] Engineering org chart
- [ ] Roles and responsibilities
- [ ] Key person dependencies
- [ ] Hiring and onboarding process

Compliance Documentation:
- [ ] SOC 2 report or readiness assessment
- [ ] Penetration test results
- [ ] Privacy policy and data handling
- [ ] Third-party security questionnaires

Security issues are the most common deal-killers:

Security Essentials:
- No critical vulnerabilities in dependencies
- All data encrypted (at rest and in transit)
- Strong access controls and audit logs
- Secrets properly managed (not in code)
- Regular security updates applied

Compliance Preparation:
- SOC 2 Type II is often expected
- Industry-specific compliance (HIPAA, PCI-DSS)
- GDPR/CCPA data handling documented
- All licenses properly tracked

Penetration Testing:
- Get an external pentest done
- Address all critical and high findings
- Document remediation for medium findings
- Keep report ready for acquirer review

The team is often as valuable as the technology:

Retention Challenges:
- Uncertainty causes attrition
- Key engineers may have other options
- Vesting acceleration concerns
- Cultural fit with acquirer

Retention Strategies:
- Retention bonuses for key engineers
- Clear communication about the process
- Involvement in acquirer discussions
- Protection of team culture
- Career path clarity post-acquisition

What Acquirers Evaluate:
- Who are the key people?
- What's the retention risk?
- Will key people stay post-acquisition?
- What are vesting schedules?
- Any employment agreement issues?

Real lessons from acquisitions we've supported:

OddsJam → Gambling.com:
- Real-time data systems under scrutiny
- Scalability questions were extensive
- Security for financial data critical
- Team retention was a major factor
- Clean documentation accelerated the process

Rupa Health → Fullscript:
- HIPAA compliance was table stakes
- Integration complexity was major discussion
- API documentation was essential
- Team interviews were part of diligence
- Healthcare domain expertise mattered

Common Themes:
1. Start preparing 12+ months early
2. Documentation saves time during diligence
3. Security issues can kill deals
4. Team retention is as important as code
5. Transparency builds trust

Avoid these acquisition killers:

🚩 Hidden Security Issues
Discovered security problems destroy trust. Disclose known issues proactively.

🚩 IP/Licensing Problems
Unlicensed code or unclear IP ownership can kill deals or require costly remediation.

🚩 Key Person Dependency
If one engineer holds all the knowledge, that's a massive risk for acquirers.

🚩 Misleading Metrics
Inflated numbers (users, performance, etc.) that don't hold up to scrutiny.

🚩 Poor Documentation
Unable to explain how the system works indicates organizational dysfunction.

🚩 Team Attrition
Engineers leaving during due diligence signals problems.

🚩 Unremediated Technical Debt
Known issues with no plan to address them suggest poor engineering culture.