Preparing for a Tech Due Diligence: Step-by-Step Guide for Startups

Tech due diligence can be a pivotal moment for your startup. Investors want a clear view of your technical foundation, product scalability, and security posture. If you’re preparing for due diligence, this step-by-step guide will help you take concrete actions that align with what investors need to see.

Step 1: Get Your Governance and Ownership in Order

Investors want to see structure and clarity in your organization. Prepare the following:

• Define Roles and Responsibilities: Make sure your org chart is clear, with each team member’s role documented. Key roles such as lead developers, product owners, and security officers must be clearly defined
  • Action Item: Ensure these responsibilities align with your business goals and have documentation showing how each role contributes to growth.

• Document Ownership of Tech and IP: Investors will ask, “Who owns what?” Prepare clear documentation showing ownership of intellectual property (IP), technology products, and code. If external contractors contribute, ensure agreements about IP ownership are explicit.
  • Action Item: Gather legal contracts and proof of IP ownership for every critical asset.

• Outsourcing Arrangements: If you use contractors or outsourcing, have the contracts and performance records ready to show how these partners integrate into your workflows. Show the value they add.
  • Action Item: Don’t rely on external resources without a well-documented clear continuity plan in place. This lack of foresight can jeopardize your business in case of disruptions.

Did you know?

Using Codenteam can help you measure outsourcing reliance in your company, on each team level and on each module level. Codenteam can also help automatically assign developers to teams based on their knowledge.

Step 2: Tighten Your Security

Security is a key focus for investors. Be ready to demonstrate that your startup is secure, proactive, and compliant.

• Perform a Security Audit: Conduct a full security audit before due diligence. Test for vulnerabilities using SAST (Static Application Security Testing), DAST (Dynamic Application Security Testing), and SCA (Software Composition Analysis) to ensure your code and third-party libraries are secure.
  • Action Item: Create a report detailing your security test results and the steps you’ve taken to address vulnerabilities.

• Update Dependencies: Keep your software libraries and dependencies up to date. Use tools like SBOM to manage and document every third-party component in your product.
  • Action Item: Keep an actively updated and maintained list of all used dependencies and libraries, don’t overlook any single dependency! A sinlge non-compliant dependency or a single vulnerable library can be a deal breaker.

• Document Security Policies: Investors want to see that security isn’t just an afterthought. Prepare documentation on your encryption practices, MFA policies, and incident response plans.

Did you know?

Codenteam AI conducts sophisticated security scans and produces SAST, DAST, SCA and SBOM results in a unified report.

Step 3: Prepare Your Infrastructure for Scalability

Investors are thinking long-term—they want to know your infrastructure can scale without crashing under pressure.

• Infrastructure Documentation: Prepare detailed documentation of your tech stack, cloud architecture, and infrastructure. Include diagrams showing how your system scales with increased load.
  • Actionable Task: Conduct load testing and show evidence of how your infrastructure performs under high stress.
• Optimize Performance: If performance tests reveal bottlenecks, fix them now. Investors won’t be impressed with potential scalability issues.

TIP

Always use the past-present-future method (Gap Analysis) to show optimizations by presenting old results, current results then future plans, as showing improvements along with future plans to scale is key to get investors trust.

• Plan for Growth: Show your plan for future scalability. This could include cloud-based autoscaling features, flexible infrastructure components, or plans for internationalization and localization.
  • Actionable Task: Develop a scalability roadmap with milestones tied to user growth and geographic expansion.

Step 4: Streamline Your Development and Release Process

A well-documented development process tells investors you’re efficient and that your product can evolve quickly.

• Prepare DevOps Documentation: Investors will ask, “How fast can you ship?” Have documentation on your CI/CD pipelines, automated testing, and release cycles. Show that you can push updates efficiently while maintaining quality.
  • Actionable Task: Ensure every step of your development lifecycle, from code to production, is documented and automated where possible.
• Automate Testing: If your tests are manual, now is the time to automate. Investors want to see efficiency, and automated tests are key.
  • Tip: Present reports from recent tests showing no regression issues and smooth deployments.
• Track Metrics: Have concrete metrics showing your team’s velocity and performance. Investors want to know that your development process is scalable and improving.
  • Actionable Task: Prepare data showing release frequency, time to deploy, and error rates during releases.

Step 5: Get Your Legal and Compliance Documentation Ready

Legal issues can stall deals. Don’t let compliance gaps hinder your progress.

• Document IP Ownership and Licensing: Ensure your licensing agreements (especially for open-source software) are up-to-date and compliant with relevant laws.
  • Actionable Task: Perform an IP audit, checking for any potential legal issues, and compile all agreements related to your tech and IP.
• Compliance Certifications: Gather any relevant certifications (e.g., GDPR, HIPAA, PCI-DSS). Investors want proof that you’re legally compliant and understand industry regulations.
  • Tip: If you haven’t achieved these certifications yet, document your progress towards compliance.
• Vendor Contracts: Compile and review contracts with key vendors. Investors need assurance that you have solid agreements in place that won’t introduce unexpected risks.
  • Actionable Task: Prepare summaries of your most critical vendor relationships, including terms of service, cost structures, and how they impact your tech.

Step 6: Create a Risk Management Plan

Investors love startups with a plan for managing risk. Be proactive and show them you’re in control. Even if any previous step has a clear red flag, a good risk management plan can make up for it!

• Identify Key Risks: Assess and document risks around your tech stack, operational reliance on key individuals, and potential scalability challenges.
  • Actionable Task: Create a risk management plan outlining how you will mitigate each risk.
• Disaster Recovery Plan: Prepare a comprehensive disaster recovery plan that accounts for cyberattacks, data breaches, and infrastructure failures.

Did you know

Most compliance certifications like ISO 27001 and others require a BCP plan and actual drill (simulation/test) on regular basis.

• Tip: Make sure this plan is tested regularly, and document the results of your tests.
• Monitor Financial Health: Investors want to see that you’re efficient with your technology spending. Have a report on your tech budget, showing where you’ve invested and where you plan to allocate future resources.
  • Actionable Task: Create a financial breakdown showing the return on investment for key technology projects.

Step 7: Prepare for Questions

Finally, anticipate the questions investors will ask. Be ready with clear, concise answers supported by documentation.

• Know Your Numbers: Be prepared to discuss KPIs, from customer acquisition costs to infrastructure efficiency. Investors want clear evidence that you understand your business and the technology behind it.
• Technical Leadership: Expect questions about your leadership. Be ready to explain how your CTO and tech team are prepared for scaling.
• Exit Strategy: Have a well-documented strategy for potential exits, mergers, or acquisitions. Investors want to know that you’ve planned for the future.

Conclusion

Preparing for tech due diligence is a detailed, multi-step process. By focusing on governance, security, scalability, development processes, legal compliance, and risk management, you can give investors confidence in your startup’s ability to grow and thrive. Make sure you’re well-prepared with documentation and proactive strategies for each of these areas—your readiness will make all the difference in closing the deal.