Technical Due Diligence: Checklist for Startups (2024)

While preparing for the tech due diligence, you need to consider all the strong sides of your service or product.

Technical due diligence questions also depend on the investment stage of your startups. Below you can find various investment stages.

As you can see, there are four main investment phases for startup firms. The tech due diligence and its elements may vary depending on them.

However, there are six primary elements that you need to consider beforehand.

The main thing about the technical due diligence process is discussing your company’s technology. Get ready to describe your technology and provide tech documentation, architectural charts, scalability, and so on. Additionally, you need to compare your solution to the competitors making sure you’re offering something unique.

As for infrastructure, you need to explain the constituents of your product like programming languages, databases, or any other technologies. The investors pay a lot of attention to this factor to avoid security issues.

Challenge: Prepare detailed documentation beforehand.

It’s common to examine the architecture utilizing the ‘4+1’ view model by Philippe Kruchten. According to this model, you can look through the system from various points of view.

The ‘four’ stands for development, logical, physical, and process views. As for the ‘one,’ it means scenarios that show different options of using the system.

No doubt that code quality is one of the most significant factors for technical due diligence. A badly built system can cause a lot of bugs and malfunctions.

During tech due diligence, investors pay attention to the code since poor-written code leads to additional development time and costs.

Challenge: Hire a qualified team of developers that can write high-quality code.

It’s good to have unit testing since it shows all the possible pitfalls. But, you need to test not only the back end of your project but also the front-end and data repository. Look through UI and fulfill the regression testing to avoid malfunctions.

One more point to consider is scalability of your product. It can become a crucial point, especially if your product will be deployed to the investors’ solution. For example, you can give information about the test your team has done.

During the technical due diligence process, it’s common to find out how the system works and what kind of problems can appear during the growth.

Challenge: create a scalable product that is ready for growth.

There are several aspects that you need to consider in this area. For instance, extensibility. Is your system ready for unexpected growth? It’s necessary to highlight the problems that can appear and ways on how to solve them.

Since the security issues are significant, you need to prepare all the documents about the security tests performed. By the way, some automated tools can collect such information and provide reports (SoupUI, Apigee).

The team of software developers creates and maintains your product, so they tend to have a significant impact on your business and success. Of course, investors are interested in your team of professionals during the technical due diligence process.

You need to give them information about the team members, highlighting team leads, and their responsibilities. If you cooperate with outsourcing companies, it’s better to introduce outsourced team members to the investors.

Challenge: Keep your contracts and workers prepared.

You need to keep the organizational chart up to date. You can even have a database with all the contracts of employees and their associated costs. Additionally, you can prepare a list of your employees and their skills connected to your project development and deployment. Make sure that your software development team consists of engineers, designers, and product managers.

Let’s move on with the inner processes. To build and maintain an exciting product, you need to have a working system. That’s why you need to consider such issues as quality assurance, security testing, product support, and deployment processes. Investors want to see that these processes are cost-efficient and effective.

Challenge: Well-designed documentation with detailed workflows.

It’s better to document all your inner processes. For example, the information about the schedule, expenses, and team members. It’s also good to prepare performance metrics and KPIs.

Last but not least is intellectual property. Investors pay a lot of attention to this factor. You need to ensure your future partners that the intellectual property is completely protected. It’s better to pay attention to any third party components like free or open-source software.

Challenge: Update the company’s patents regularly.

You need to carefully track all the open-source components of your software solution like dependencies, licenses, and more. In this case, you can prevent any legal issues.

If you are not an expert in the technical due diligence, you’d better hire professionals. They can prepare all the required documentation to evaluate and protect the investment.

To do the tech due diligence properly, you can look through our checklist. There is a list of due diligence questions to start understanding the structure and maintenance of the product.

Frequently Asked Questions