Technical Due Diligence: What Investors Look for in Engineering Teams

Technical due diligence (TDD) happens at two critical moments: when raising a Series A or B, and when being acquired. In both cases, a technical reviewer — either the investor's in-house engineer or a hired firm — spends 2–4 weeks evaluating your codebase, architecture, team, and engineering practices.

TDD findings can kill a deal, reduce valuation, or create a remediation plan tied to closing. Founders who've been through TDD say the same thing: preparing in advance is significantly less painful than discovering problems under time pressure.

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What Technical Due Diligence Covers

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The Self-Audit: 30 Questions Before Due Diligence

Run this against your own company before investors do:

Codebase

• Test coverage: Do you have unit + integration tests? Is coverage > 60%?
• CI/CD: Does every PR run automated tests before merge?
• Documentation: Is the README accurate? Can a new engineer set up the dev environment in < 1 hour?
• Dependency management: Are dependencies up to date? Are there known CVEs in your dependency tree?
• Code review: Is there a code review process? No single-committer main branch?
• Secrets: Are there any secrets, API keys, or credentials in the Git history?

# Check for secrets in git history (before an investor does)
brew install git-secrets
git secrets --scan-history

# Or use trufflehog
docker run --rm -it trufflesecurity/trufflehog:latest git \
  --repo=https://github.com/yourorg/yourrepo \
  --since-commit HEAD~100

Architecture

• Single points of failure: Can your product survive the loss of any single server/service?
• Database backups: Are backups automated and tested? Can you restore from backup in < 4 hours?
• Horizontal scaling: Can you add more servers to handle 10× current load?
• Dependency risk: Are you dependent on a single third-party API with no fallback?
• Data portability: Can customers export their data in a standard format?

Security

• Auth implementation: JWT validation, session management, password hashing (bcrypt/argon2)?
• Input validation: Is all user input validated and sanitized?
• Penetration testing: Have you had a professional pen test in the last 18 months?
• Vulnerability disclosure: Do you have a security disclosure policy?
• Access control: Principle of least privilege in production access?

Team and Processes

• Bus factor: If your best engineer left tomorrow, could the team continue without major disruption?
• Documentation: Are architecture decisions documented (ADRs)?
• Runbooks: Are there runbooks for common incidents?
• On-call: Is there a defined on-call rotation with documented escalation?

IP and Legal

• IP assignment: Have all founders, employees, and contractors signed IP assignment agreements?
• Open-source licenses: Is any GPL/AGPL code used in your commercial product without a commercial license?
• Third-party IP: Are you using any fonts, images, or code without proper licenses?
• Employment agreements: Do all employees have signed agreements with IP clauses?

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Common Red Flags and How to Fix Them

Red Flag: Secrets in Git History

Even if you deleted the file, secrets in git history are recoverable. Any competent TDD will find them.

# Remove secret from git history
git filter-branch --force --index-filter \
  "git rm --cached --ignore-unmatch config/secrets.yml" \
  --prune-empty --tag-name-filter cat -- --all

# Or use BFG (faster)
java -jar bfg.jar --delete-files secrets.yml yourrepo.git
git reflog expire --expire=now --all
git gc --prune=now --aggressive
git push origin --force --all

Then rotate every secret that was exposed. Immediately.

Red Flag: Zero Automated Tests

Investors interpret zero tests as: "the team doesn't trust their own code." It signals technical debt accumulation and high regression risk.

Fastest path to meaningful coverage:

// Start with integration tests on your most critical paths
// This covers more surface area than unit tests for the same effort

describe('POST /api/checkout', () => {
  it('creates order and charges payment method', async () => {
    const { body } = await request(app)
      .post('/api/checkout')
      .set('Authorization', `Bearer ${testUserToken}`)
      .send({
        items: [{ productId: 'prod-123', quantity: 1 }],
        paymentMethodId: 'pm_test_visa',
      })
      .expect(201);

    expect(body.order.id).toBeDefined();
    expect(body.order.status).toBe('paid');

    // Verify DB state
    const order = await db.orders.findById(body.order.id);
    expect(order.paymentStatus).toBe('captured');
  });
});

Red Flag: No Monitoring or Alerting

"We know when something is down when customers email us" is an immediate TDD concern.

# Minimum monitoring setup (1 week to implement)
Uptime monitoring: Better Uptime / UptimeRobot ($0–30/mo)
  - Check every 1 minute
  - Alert to Slack + email on downtime

APM: Datadog or New Relic ($15–30/host/mo)
  - Track p99 API latency
  - Database query performance
  - Error rates

Alerting rules:
  - API p99 latency > 2s → PagerDuty alert
  - Error rate > 1% → Slack alert
  - Database CPU > 80% → PagerDuty alert

Red Flag: GPL Code in Commercial Product

If you've used GPL-licensed libraries in a commercial product, you may be legally required to open-source your entire codebase. This is a serious IP issue.

# Audit your license exposure
npx license-checker --production --summary
# or
pip install pip-licenses && pip-licenses --order=license --format=markdown

Anything GPL/AGPL in the list requires review. Common offenders: some charting libraries, older database connectors, some image processing tools. Replace or get a commercial license.

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What Great Technical Due Diligence Results Look Like

Investors aren't expecting perfection. They're evaluating:

1. Is the technology defensible? Does it provide competitive advantage?
2. Can it scale? Will it break at 10× current load, or handle it gracefully?
3. Is the team credible? Do they make sound technical decisions?
4. Are there known risks? And do the founders know about them (vs. being blindsided)?

The best outcome isn't "no issues found" — it's "issues found, team already aware, remediation plan in place." Founders who know their technical debt and have a plan to address it signal maturity.

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Preparing Your Technical Narrative

Beyond the audit, prepare a 1-page technical summary for investors:

## [Company] Technical Architecture Overview

### Tech Stack
- Frontend: Next.js 15 (React, TypeScript)
- Backend: Fastify + Node.js (TypeScript)
- Database: PostgreSQL 16 (AWS RDS)
- Infrastructure: AWS ECS Fargate, Terraform-managed
- CI/CD: GitHub Actions → ECS (automated deploys on merge)

### Scale
- Current: 500 DAU, 5M events/month
- Architecture supports: 50,000 DAU without changes
- Path to 500K DAU: Read replicas, Redis caching, CDN (3-4 weeks work)

### Known Technical Debt
- No integration test coverage on payment flows (plan: Q2 2026)
- Some legacy endpoints using deprecated Auth0 SDK (migration: Q1 2026)
- Database connection pooling not configured for peak load (fix: 2 days)

### IP and Compliance
- All founder and employee IP assignments signed ✅
- No GPL code in commercial product ✅
- GDPR: DPAs signed with all processors ✅
- SOC 2 Type II: In progress, expected Q3 2026

This document shows investors you understand your own system — which is more valuable than a perfectly clean audit.

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Working With Viprasol

We conduct technical due diligence for investors and support founders preparing for TDD — code audits, architecture reviews, security assessments, and remediation work to address findings before they impact a deal.

→ Talk to our team about technical due diligence preparation or execution.

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See Also

• Startup Fundraising Tech — data rooms and investor preparation
• Software Architecture Patterns — defensible architecture decisions
• DevOps Best Practices — CI/CD and deployment maturity
• Fintech Compliance Software — compliance in regulated industries
• Web Development Services — technical advisory and engineering