Technical Due Diligence Checklist: Preparing Your Startup for Acquisition or Funding

Technical due diligence is the process of evaluating a company's technology, engineering team, and technical practices. It happens during:

• **Fundraising**: Series A+ investors often conduct tech DD
• **Acquisition**: Acquirers want to know what they're buying
• **Strategic Partnership**: Partners may evaluate your tech before committing

What's Being Evaluated:
1. Code quality and architecture
2. Security and compliance posture
3. Team capabilities and structure
4. Infrastructure and scalability
5. Technical debt and risks
6. IP and licensing

Who Conducts Due Diligence:
- Internal technical teams at acquiring company
- External consultants (often CTOs-for-hire)
- Investment firm operating partners
- Specialized due diligence firms

Use this checklist to prepare for due diligence. Start 3-6 months before you expect the process.

📁 Documentation Required:
- [ ] System architecture diagrams
- [ ] API documentation
- [ ] Database schema documentation
- [ ] Deployment and infrastructure diagrams
- [ ] Security policies and procedures
- [ ] Incident response runbooks
- [ ] Engineering team org chart
- [ ] Technology roadmap

💻 Codebase Items:
- [ ] Clean, organized repository structure
- [ ] Consistent code style and linting
- [ ] Meaningful commit messages
- [ ] Code review process documented
- [ ] Test coverage metrics
- [ ] CI/CD pipeline documentation
- [ ] Dependency audit (no known vulnerabilities)
- [ ] License compliance for all dependencies

🔒 Security & Compliance:
- [ ] SOC 2 readiness (or certification)
- [ ] Penetration test results (within 12 months)
- [ ] Data handling and privacy documentation
- [ ] Access control and audit logs
- [ ] Encryption practices (at rest and in transit)
- [ ] Incident response plan
- [ ] Business continuity plan

👥 Team & Process:
- [ ] Team structure and roles
- [ ] Hiring process documentation
- [ ] Onboarding materials
- [ ] Development process (sprints, etc.)
- [ ] Key person dependencies identified
- [ ] Retention plans for critical engineers

Acquirers and investors will dig into your codebase. Here's what they look for:

Architecture Questions They'll Ask:
- Is the architecture appropriate for current scale?
- Can it scale 10x without major rewrites?
- Are there clear service boundaries?
- Is there proper separation of concerns?
- Are there any single points of failure?

Code Quality Indicators:
- Test coverage (aim for 60%+ for critical paths)
- Documentation in code and external
- Consistent style and patterns
- Clear error handling
- Minimal code duplication

Red Flags That Kill Deals:
- Spaghetti code with no structure
- No tests or broken tests
- Hardcoded credentials in code
- Massive technical debt with no plan
- Critical systems built by one person

Security issues are deal-breakers. Prepare thoroughly:

Security Essentials:
- All data encrypted at rest and in transit
- Strong authentication (MFA for internal tools)
- Regular security updates applied
- No known vulnerabilities in dependencies
- Access controls and audit logging
- Secure secrets management

Compliance Preparation:
- SOC 2 Type II (or readiness assessment)
- Industry-specific: HIPAA, PCI-DSS, etc.
- GDPR/CCPA data handling
- Privacy policy and terms of service

Penetration Testing:
- Get a third-party pentest within 12 months
- Address all critical and high findings
- Document remediation for medium findings
- Keep the report ready for sharing

The team is often more valuable than the code. Prepare for team evaluation:

Team Documentation:
- Org chart with reporting lines
- Roles and responsibilities
- Tenure and retention data
- Key person dependencies
- Hiring pipeline and process

Process Documentation:
- Sprint/development cycle
- Code review process
- Deployment process
- Incident response
- On-call rotation

Questions They'll Ask:
- What happens if your lead engineer leaves?
- How do you onboard new engineers?
- What's your average deployment frequency?
- How do you prioritize technical debt?

Can your system handle growth? Be ready to prove it:

Infrastructure Documentation:
- Cloud provider and services used
- Monthly infrastructure costs
- Scaling capabilities (auto-scaling, etc.)
- Disaster recovery plan
- Backup and restore procedures

Performance Metrics:
- Current traffic/load levels
- Response time percentiles (p50, p95, p99)
- Error rates
- Uptime history (aim for 99.9%+)

Scalability Questions:
- What's your current capacity vs. usage?
- How would you handle 10x traffic?
- What's your biggest scaling bottleneck?
- Have you done load testing?

Every company has technical debt. The key is knowing and managing it:

Technical Debt Documentation:
- Known debt items with severity
- Estimated effort to address each
- Priority and timeline for remediation
- Impact of leaving unaddressed

Common Debt Categories:
- Code quality issues
- Outdated dependencies
- Missing tests
- Documentation gaps
- Architecture limitations
- Security improvements needed

How to Present Debt:
Don't hide technical debt—acquirers will find it. Instead:
1. Show you understand what debt exists
2. Explain why decisions were made
3. Present a realistic remediation plan
4. Quantify the risk of not addressing

Due diligence involves your whole engineering team:

Before Due Diligence:
- Brief the team on what's happening (if you can)
- Identify who will answer technical questions
- Prepare engineers for interviews
- Align on key messages and narratives

During Due Diligence:
- Designate a technical POC (often CTO or lead)
- Set up data room access efficiently
- Respond to questions promptly (within 24 hours)
- Document all Q&A for future reference

Team Interview Prep:
- Practice common questions
- Be honest about challenges (they'll find them anyway)
- Focus on problem-solving approaches
- Show passion for the product and technology

Whether you hire a consultant to prepare or work with the acquirer's consultant:

Hiring a Consultant to Prepare:
- Start 3-6 months before expected DD
- Get a "red team" assessment first
- Address critical issues before real DD
- Practice the presentation and Q&A

Working with Acquirer's Consultants:
- Be responsive and transparent
- Provide requested materials promptly
- Don't hide issues (they will find them)
- Ask clarifying questions
- Document everything

What Good Consultants Deliver:
- Comprehensive technical assessment
- Risk inventory with severity ratings
- Remediation recommendations
- Executive summary for non-technical stakeholders
- Comparison to market standards