The CTO's Guide to Technical Due Diligence

The High-Stakes Technical Inspection

You've built a successful product, validated product-market fit, and attracted serious investor interest. Now comes the moment of truth: technical due diligence. A team of experienced engineers will scrutinize your codebase, architecture, and technical practices to assess risk and validate your technical claims.

As a CTO who has both conducted technical due diligence for investors and prepared startups for the process, I've seen deals killed by avoidable technical issues and companies sail through diligence because they prepared properly. This guide reveals exactly what investors look for and how to prepare your technical foundation for scrutiny.

The stakes are high: a failed technical due diligence can torpedo a funding round, slash your valuation, or force you into uncomfortable technical remediation plans. But with the right preparation, you can turn technical diligence from a risk into a competitive advantage.

What Is Technical Due Diligence?

Technical due diligence is a systematic evaluation of your technology stack, codebase quality, architecture, team capabilities, and technical processes. Investors hire external CTOs or technical consultants to assess:

• Technical risk: Can this technology scale? Are there hidden technical debts that could derail the business?
• Validation of claims: Does the product actually work as advertised? Are performance metrics accurate?
• Team capability: Can this team execute on the technical roadmap?
• Defensibility: What intellectual property exists? How hard would it be for competitors to replicate this?
• Cost structure: Are infrastructure costs reasonable? Will margins survive at scale?

The process typically takes 1-3 weeks and involves code review, architecture assessment, security audits, team interviews, and infrastructure analysis.

The Red Flags That Kill Deals

Before we discuss how to prepare, let's understand what fails technical diligence. These are the issues I've seen derail funding rounds:

1. The "Founder Wrote Everything" Problem

The issue: The entire codebase was written by the technical founder, with no documentation, no tests, and code that only they understand. The founder is the single point of failure.

Why it's fatal: Investors know that if the founder leaves or gets hit by a bus, the product dies. This is unacceptable risk for a growth-stage investment.

Red flag indicators:

• 95%+ of commits from a single author
• No code reviews or pull request process
• Undocumented "magic" code that nobody else understands
• Key systems that only one person can deploy or debug

2. Security Vulnerabilities

The issue: Critical security flaws like SQL injection vulnerabilities, exposed API keys in code, no authentication on admin endpoints, or unencrypted customer data.

Why it's fatal: Security breaches can destroy a company overnight. Investors won't fund a liability waiting to happen.

Red flag indicators:

• Passwords or API keys committed to version control
• SQL queries concatenated from user input (SQL injection risk)
• No encryption for sensitive data at rest or in transit
• Missing authentication or authorization checks
• Outdated dependencies with known vulnerabilities

3. The Unmaintainable Monolith

The issue: A massive, tangled codebase with no structure, no separation of concerns, and deep coupling between components. Making changes requires touching hundreds of files.

Why it's concerning: This signals that development velocity will slow to a crawl as the team grows. Technical debt will compound, not diminish.

Red flag indicators:

• God objects with thousands of lines of code
• Circular dependencies between modules
• Copy-pasted code instead of reusable functions
• No clear separation between business logic, data access, and presentation
• Zero automated tests

4. The Scalability Lie

The issue: The startup claims to handle millions of users, but the architecture clearly won't scale beyond current levels. Load testing reveals the system breaks at 2x current traffic.

Why it's fatal: If your pitch depends on scaling to millions of users but your tech can't deliver, investors question everything else you've claimed.

Red flag indicators:

• No caching strategy
• N+1 query problems everywhere
• Synchronous processing of long-running tasks
• Single database with no replication or sharding plan
• No load testing or performance monitoring

5. Vendor Lock-In Disasters

The issue: The entire product is built on proprietary platforms or services that control pricing, features, and data. The company has no leverage and faces existential risk if the vendor changes terms.

Why it's concerning: Investors have seen companies destroyed when vendors 10x prices, shut down APIs, or change terms of service.

Red flag indicators:

• Core IP stored exclusively in no-code platforms
• Critical functionality entirely dependent on a single vendor API
• Data in formats that can't be exported or migrated
• No abstraction layer for critical third-party services

The Due Diligence Checklist: What Investors Actually Examine

Here's exactly what experienced technical due diligence teams look for, broken down by category:

Code Quality (30% of evaluation)

What they check:

• Code structure and organization
• Naming conventions and readability
• Presence and quality of automated tests (unit, integration, end-to-end)
• Code review practices
• Documentation (README, API docs, architecture diagrams)
• Error handling and logging

How they check it: They'll clone your repo and read through random samples of code. They'll look at test coverage metrics, check if CI/CD runs tests, and review pull requests from the past 3 months.

What impresses them:

• Well-structured code that follows consistent conventions
• Comprehensive tests with >70% coverage for critical paths
• Clear documentation that lets new developers onboard quickly
• Active code review culture with thoughtful feedback
• Automated linting and code quality checks in CI/CD

Architecture & Scalability (25% of evaluation)

What they check:

• System architecture diagrams
• Database schema and indexing strategy
• Caching implementation
• API design and versioning
• Microservices vs monolith decisions
• Load balancing and redundancy
• Performance under load (response times, throughput)

How they check it: They'll request architecture documentation, review your database design, and ask pointed questions about how you handle scale. They may request load testing results or conduct their own performance tests.

What impresses them:

• Clear, documented architecture that makes sense for your scale
• Appropriate use of caching (Redis, CDN, application-level)
• Database properly indexed with query optimization
• Horizontal scaling strategy (can you add more servers to handle growth?)
• Evidence of load testing and performance monitoring
• Graceful degradation under heavy load

Security & Compliance (20% of evaluation)

What they check:

• Authentication and authorization implementation
• Data encryption (at rest and in transit)
• Secrets management (API keys, database credentials)
• Dependency vulnerabilities
• GDPR/CCPA compliance for data handling
• Backup and disaster recovery procedures
• Security audit history

How they check it: Automated security scans, manual code review for common vulnerabilities, review of access control logic, and verification of compliance with data protection regulations.

What impresses them:

• Proper authentication (OAuth2, JWT) and fine-grained authorization
• All sensitive data encrypted (AES-256 at rest, TLS 1.3 in transit)
• Secrets managed via environment variables or secret management tools (not committed to code)
• Regular dependency updates and vulnerability scanning
• Data handling compliant with GDPR, CCPA, and relevant regulations
• Automated backups with tested restore procedures

Development Process (15% of evaluation)

What they check:

• Version control practices (branching strategy, commit history)
• CI/CD pipeline implementation
• Deployment process and rollback procedures
• Monitoring and alerting setup
• Incident response procedures
• Development workflow (how features go from idea to production)

How they check it: Review of your CI/CD configuration, observation of deployment process, examination of monitoring dashboards, and interviews with engineering team about their workflow.

What impresses them:

• Automated CI/CD pipeline (build, test, deploy)
• Environment parity (dev, staging, production are similar)
• One-click deployments with automatic rollback on failure
• Comprehensive monitoring (uptime, performance, errors, business metrics)
• On-call rotation and documented incident response process
• Feature flags for gradual rollouts

Infrastructure & Operations (10% of evaluation)

What they check:

• Hosting infrastructure (cloud provider, regions, redundancy)
• Infrastructure as code (Terraform, CloudFormation)
• Container orchestration (if using Docker/Kubernetes)
• Cost structure and optimization
• Uptime history and SLAs
• Disaster recovery and business continuity plans

How they check it: Review of infrastructure diagrams, cost breakdowns, uptime metrics, and disaster recovery documentation.

What impresses them:

• Infrastructure defined as code (repeatable, versioned deployments)
• Multi-region deployment or clear path to geographic expansion
• Auto-scaling based on load
• Reasonable cost structure (gross margins make sense at scale)
• 99.9%+ uptime with documented incidents and postmortems
• Tested disaster recovery plan

How to Prepare: The 4-Week Action Plan

If you have a funding round coming up, here's how to prepare your technical house for inspection:

Week 1: Security Audit & Remediation

Day 1-2: Automated Security Scanning

• Run dependency vulnerability scanners (npm audit, pip-audit, Snyk)
• Update all dependencies with known vulnerabilities
• Scan for secrets in git history (use tools like truffleHog or git-secrets)
• If you find committed secrets, rotate them immediately and rewrite git history

Day 3-5: Manual Security Review

• Audit authentication and authorization logic
• Verify all API endpoints require proper authentication
• Check that sensitive data is encrypted at rest and in transit
• Review SQL queries for injection vulnerabilities
• Ensure environment variables are used for all secrets
• Implement rate limiting on public APIs

Day 6-7: Documentation

• Document your security practices in a SECURITY.md file
• Create a security incident response plan
• Document data handling procedures for GDPR/CCPA compliance

Week 2: Code Quality Improvements

Day 8-10: Testing

• Measure current test coverage
• Write tests for critical user flows (auth, payments, core features)
• Aim for >70% coverage on business-critical code
• Set up CI to block merges if tests fail

Day 11-12: Code Cleanup

• Remove dead code and commented-out sections
• Extract repeated code into reusable functions
• Add JSDoc/docstrings to complex functions
• Ensure consistent naming conventions
• Set up linting with auto-fix on save

Day 13-14: Documentation

• Update README with setup instructions that actually work
• Create architecture diagrams (use tools like draw.io or Lucidchart)
• Document API endpoints (use Swagger/OpenAPI)
• Write onboarding guide for new developers

Week 3: Architecture & Performance

Day 15-17: Performance Optimization

• Add database indexes for slow queries
• Implement caching for expensive operations
• Fix N+1 query problems
• Set up application performance monitoring (APM)
• Run load tests and document results

Day 18-19: Scalability Assessment

• Document your current architecture with diagrams
• Identify scaling bottlenecks and document migration paths
• Create a scaling roadmap (what changes at 10x, 100x, 1000x users?)
• Ensure database has replication/backup strategy

Day 20-21: Infrastructure as Code

• Document your infrastructure setup
• Move infrastructure to code if not already (Terraform, CloudFormation)
• Ensure environments are reproducible
• Document deployment process step-by-step

Week 4: Process & Polish

Day 22-24: Process Documentation

• Document your development workflow (branching strategy, code review process)
• Create runbooks for common operations (deployments, rollbacks, scaling)
• Document monitoring and alerting setup
• Write incident response procedures
• Create disaster recovery plan and test it

Day 25-26: Team Preparation

• Brief your team on the due diligence process
• Prepare answers to common technical questions
• Ensure team members can articulate architectural decisions
• Practice technical presentations

Day 27-28: Final Review

• Conduct internal code review with fresh eyes
• Verify all documentation is up to date
• Test that setup instructions work on a clean machine
• Create a due diligence data room with key documents

The Due Diligence Data Room: What to Prepare

Create a secure folder with these materials ready for investor review:

Technical Documentation

• System architecture diagram with explanations
• Database schema and ER diagrams
• API documentation
• Technology stack overview (languages, frameworks, tools, versions)
• Third-party dependencies and integration list
• Security practices documentation
• Data flow diagrams (especially for sensitive data)

Process Documentation

• Development workflow and branching strategy
• Code review guidelines
• CI/CD pipeline documentation
• Deployment procedures and rollback plans
• Incident response procedures
• Disaster recovery and business continuity plan

Metrics & Performance

• Load testing results
• Performance benchmarks (response times, throughput)
• Uptime history (last 12 months)
• Incident postmortems (shows you learn from failures)
• Test coverage reports
• Code quality metrics (if available)

Infrastructure & Costs

• Infrastructure diagram
• Infrastructure as Code files (Terraform, CloudFormation)
• Monthly infrastructure costs breakdown
• Scaling plan and cost projections
• Backup and disaster recovery procedures

Team & IP

• Team structure and roles
• Intellectual property assignments (ensure employees assigned IP to company)
• Open source licenses audit
• Patents or pending patent applications

Common Questions to Prepare For

Experienced technical diligence teams will ask variations of these questions. Prepare clear, honest answers:

Architecture & Scalability

• "Walk me through what happens when a user [performs core action]."
• "What's your biggest architectural bottleneck right now?"
• "How would you scale to 10x current traffic?"
• "Why did you choose [technology X] over [technology Y]?"
• "What would you rebuild if you could start over?"

Security & Compliance

• "How do you handle user authentication and authorization?"
• "Where is sensitive data stored and how is it encrypted?"
• "How are API keys and secrets managed?"
• "Are you GDPR/CCPA compliant? How do you handle data deletion requests?"
• "When was your last security audit?"

Code Quality & Process

• "What's your code review process?"
• "How do you ensure code quality?"
• "What's your test coverage and testing strategy?"
• "How long does it take to onboard a new developer?"
• "How often do you deploy to production?"

Team & Technical Debt

• "What technical debt keeps you up at night?"
• "What's on your technical roadmap for the next 6-12 months?"
• "How much of your engineering time goes to new features vs. maintenance?"
• "If your technical founder left tomorrow, would the team be okay?"
• "What are the biggest technical risks to the business?"

The "Good Enough" Standard

Here's the reality: investors don't expect perfection. Early-stage startups have technical debt. That's normal. What investors want to see is:

1. Awareness: You know what your technical debt and risks are
2. Honesty: You're upfront about limitations, not hiding issues
3. Plan: You have a credible plan to address major issues as you scale
4. Foundation: The fundamentals (security, basic quality, documentation) are solid
5. Capability: The team can execute on the technical roadmap

A startup with 60% test coverage, clear documentation, basic security practices, and honest awareness of technical debt will pass diligence. A startup with 90% test coverage but hidden security vulnerabilities will fail.

Red Flags From Your Side

Sometimes the diligence process reveals problems with the investor. Watch for these warning signs:

• Unrealistic expectations: They expect Series A startup to have Google-level engineering practices
• Lack of technical understanding: They don't understand why certain trade-offs were made
• Secret shopping: They're using diligence as free consulting to build a competitor
• Excessive NDA requests: They want access to your entire codebase before term sheet commitment

Due diligence should be collaborative, not adversarial. Good investors understand startup constraints and want to help you address issues, not use them as negotiating leverage.

Post-Diligence: Addressing Issues

If diligence reveals issues, you have options:

1. Fix Before Close

Minor issues that can be fixed quickly (rotate exposed API keys, patch critical vulnerabilities, add missing tests for core features). Do this for anything that takes <2 weeks and eliminates material risk.

2. Technical Remediation Plan

For larger issues, create a detailed plan with timeline and milestones. This might become a condition of the investment (e.g., "hire security engineer within 3 months" or "achieve 70% test coverage within 6 months").

3. Valuation Adjustment

Significant technical issues might justify a valuation haircut. Be prepared to negotiate, but don't let investors use minor debt as leverage for unreasonable discounts.

4. Walk Away

If the investor uses diligence findings to make unreasonable demands or doesn't understand your technical trade-offs, consider walking away. There are other investors.

Conclusion: Diligence as a Quality Signal

Technical due diligence isn't just a hurdle—it's an opportunity. Companies that pass rigorous diligence signal quality to investors, customers, and acquirers. The process of preparing for diligence forces you to address technical debt you've been postponing, improve your documentation, and strengthen your engineering culture.

Start preparing early. Don't wait until you're in due diligence to discover critical issues. Make technical excellence a continuous practice, not a pre-funding sprint. The best time to prepare for technical due diligence is now, before you need it.

Key takeaways:

• Security, code quality, and documentation are non-negotiable basics
• Investors expect technical debt but want to see awareness and a plan
• Prepare a due diligence data room with key technical documentation
• Brief your team and practice answering common questions
• Use the 4-week preparation plan to systematically address major gaps
• Be honest about limitations—transparency builds trust

Technical due diligence isn't about being perfect. It's about being prepared, honest, and capable of executing on your technical vision. Get your house in order, and you'll turn diligence from a stressful interrogation into a confidence-building validation of your technical foundation.

Preparing for a funding round and need help with technical due diligence? Let's talk. We help startups prepare for technical scrutiny, conduct mock diligence reviews, and remediate issues before they derail funding rounds.