How to Conduct Technical Due Diligence Before Fundraising

Raising funds for a startup isn’t just about pitching the vision—it’s also about proving that the technology behind the business is sound, scalable, and secure. Investors conduct technical due diligence (TDD) to assess whether a startup’s technology can support growth, handle security risks, and align with its business strategy.

For startups seeking funding, a well-prepared technical due diligence process can build investor confidence, speed up fundraising, and prevent last-minute surprises. This guide outlines what to expect during technical due diligence and how to prepare effectively.

What is Technical Due Diligence?

Technical due diligence is a structured evaluation of a startup’s technology, conducted by investors, potential acquirers, or partners. It assesses:

✔ Scalability & Performance – Can the tech stack handle growth?

✔ Security & Compliance – Are there security risks or regulatory issues?

✔ Code Quality & Architecture – Is the codebase well-structured and maintainable?

✔ Development Processes & DevOps – Are engineering workflows efficient?

✔ Team Strength & Hiring Strategy – Does the startup have the right people?

💡 Why It Matters: Poor technical due diligence can lead to funding delays, reduced valuations, or even deal cancellations.

Step 1: Understand What Investors Look For

Investors aren’t just looking at the code—they want to ensure the entire technology infrastructure supports the business.

Key Areas Investors Assess in Technical Due Diligence

1. Scalability & Future Growth Potential

📌 Can the system handle 10x or 100x user growth?

📌 Is the infrastructure scalable (cloud-based, microservices, auto-scaling)?

📌 Does the database architecture support high-volume traffic?

💡 How to Prepare:

✅ Use cloud platforms like AWS, Google Cloud, or Azure to ensure scalability.

✅ Implement load balancing and caching (Redis, Cloudflare) for performance optimization.

✅ Document a scalability plan showing how the system will evolve.

2. Security & Compliance

📌 How is user data protected (encryption, authentication, access control)?

📌 Does the system follow industry compliance standards (GDPR, SOC 2, HIPAA)?

📌 Have there been any past security breaches or vulnerabilities?

💡 How to Prepare:

✅ Implement role-based access control (RBAC) to restrict data access.

✅ Use automated security testing tools (OWASP ZAP, Snyk, SonarQube).

✅ Document security policies and compliance certifications.

3. Code Quality & Maintainability

📌 Is the codebase well-documented and structured?

📌 Are there high levels of technical debt?

📌 Does the team follow best practices for testing, version control, and CI/CD?

💡 How to Prepare:

✅ Use static code analysis tools (SonarQube, CodeClimate) to evaluate code quality.

✅ Implement unit testing and integration tests to catch bugs early.

✅ Maintain clear technical documentation to show investors.

4. Development Processes & DevOps

📌 How quickly can new features be deployed?

📌 Are CI/CD pipelines in place to automate testing and releases?

📌 Is there an effective system monitoring and logging process?

💡 How to Prepare:

✅ Use CI/CD pipelines (GitHub Actions, Jenkins, GitLab CI/CD) to automate deployments.

✅ Monitor system health using Datadog, Prometheus, AWS CloudWatch.

✅ Document agile development workflows (scrum, kanban) to show efficiency.

5. Team Strength & Hiring Plans

📌 Does the startup have the right technical talent?

📌 What is the hiring plan for scaling the engineering team?

📌 How are developers onboarded and managed?

💡 How to Prepare:

✅ Identify key team members and their expertise.

✅ Develop a technical hiring roadmap showing how the team will scale.

✅ Implement clear onboarding documentation for new engineers.

Step 2: Prepare Key Technical Documents for Investors

Investors expect detailed documentation during due diligence. Startups should prepare the following documents in advance to avoid last-minute scrambling.

📌 Technical Architecture Overview – High-level diagram of the system design, infrastructure, and integrations.

📌 Scalability & Performance Plan – How the system will scale with user growth.

📌 Security & Compliance Reports – Penetration test results, security audits, compliance certifications.

📌 Code Quality & DevOps Strategy – How the startup maintains high-quality code and automated deployment processes.

📌 Technical Team & Hiring Plan – A breakdown of team members, roles, and future hiring plans.

💡 Tip: Store these documents in a secure data room (Google Drive, Dropbox, or DocSend) for easy access.

Step 3: Conduct an Internal Tech Audit

Before investors start their review, conduct an internal technical due diligence audit to identify potential weaknesses.

Internal Audit Checklist

✅ Run security scans to identify vulnerabilities.

✅ Review database performance and potential bottlenecks.

✅ Check CI/CD workflows for efficiency and automation.

✅ Identify and document technical debt that might concern investors.

✅ Prepare a roadmap for future improvements to demonstrate a proactive approach.

💡 Tip: Bring in a fractional CTO or external auditor to conduct a third-party assessment before investor meetings.

Step 4: Be Ready to Answer Investor Questions

Investors will ask technical questions during due diligence. Founders should be prepared to answer clearly and confidently.

Common Investor Questions During Technical Due Diligence

1️⃣ What technology stack are you using, and why?

• Explain the reasoning behind framework, database, and cloud provider choices.

2️⃣ How will the system scale as user demand grows?

• Show a scalability plan and performance benchmarks.

3️⃣ How does your startup handle security risks?

• Provide details on encryption, authentication, and compliance.

4️⃣ What are the biggest technical challenges your team is facing?

• Be honest but show a clear plan for addressing challenges.

5️⃣ Who are the key technical team members, and what is the hiring strategy?

• Highlight core engineers, hiring plans, and team strengths.

💡 Tip: If you’re unsure about highly technical questions, involve your fractional CTO or lead developer in investor meetings.

Step 5: Work with a Fractional CTO for Pre-Fundraising Preparation

Many startups don’t have a full-time CTO before raising funds. A fractional CTO can help prepare for technical due diligence by:

✔ Conducting an internal tech audit to identify weaknesses.

✔ Creating technical documentation for investors.

✔ Assisting in answering investor questions during due diligence.

✔ Developing a technical hiring plan for post-funding growth.

💡 Tip: A fractional CTO adds credibility to the startup, making it easier to pass due diligence and secure investment.

Final Thoughts

Technical due diligence is a critical part of the fundraising process. Startups that prepare in advance will have a smoother investor review process, fewer surprises, and a higher chance of securing funding.

Key Takeaways:

✅ Investors evaluate scalability, security, code quality, DevOps, and team strength.

✅ Prepare detailed technical documentation before investor meetings.

✅ Conduct an internal tech audit to fix weaknesses before due diligence begins.

✅ Be ready to answer technical questions with confidence.

✅ Work with a fractional CTO to streamline the process and improve investor confidence.

By proactively preparing for technical due diligence, startups can avoid last-minute issues, impress investors, and secure funding faster.