Imagine that an influential investor has recently expressed interest in your startup. Your team is ecstatic, you are, and the opportunities for expansion appear limitless. The next sentence, “We’d like to start tech due diligence,” turns the enthusiasm into a mixture of anxiety and exhilaration. Although this procedure is essential for obtaining capital or an acquisition, it can also be frightening.
Due diligence is now more important than ever in 2025 as a result of the quick developments in technology and the emphasis on cost effectiveness in the global economy. Investors must be certain that your technology is long-lasting, secure, and scalable. Using statistics, real-world examples, and stories from entrepreneurs that have gone through this process, we’ll lead you through a useful checklist to help you prepare.
Before choosing to invest in or purchase a startup, investors, buyers, or other stakeholders conduct tech due diligence, which is a thorough assessment of the company’s technological aspects. The company’s technology, systems, product development, code quality, security protocols, intellectual property, scalability, and team strength are all reviewed during this process.
Finding any hazards, evaluating the company’s technological assets, and ensuring that the technology supports the company’s commercial objectives and future expansion are the objectives. A complete tech due diligence procedure guarantees that decisions are founded on the company’s technical potential and helps lower risks.
“Tech diligence doesn’t just involve tech; understanding and presenting financial projections is just as crucial for investor trust.” — Priya Reddy, CFO of FinEdgeTech.
Let’s look into the complete checklist for tech due diligence for founders in depth:
Investors want to see clear, well-structured, and understandable code. According to a McKinsey research, startups with disorganized code spend 30–40% more on bug fixes and business expansion than those with standardized, well-maintained code.
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Case Study: TechStarters, a small SaaS company, learned this the hard way. During their Series B funding round, they had to delay the process for a month due to incomplete documentation. They ultimately raised $10M but noted that better preparation could have saved weeks of work.
According to IBM (2023), security breaches now cost businesses an average of $4.35 million every time they occur, therefore cybersecurity is a top priority for tech due diligence. A transaction can be ruined by problems including data breaches, unsafe APIs, and inadequate compliance.
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Fun Fact: 2023 saw a 35% increase in investors inquiring specifically about AI-related data compliance. This surge is tied to the rise in AI startups handling sensitive user data.
Still have confusion regarding security procedures and compliance? Connect with YeasiTech, our team will assist you and guide you after understanding what exactly your needs are.
Today’s investors are wary of bloated infrastructure costs. Poor planning wastes 60% of cloud spending, according to a Gartner analysis. Demonstrating cost efficiency through scalable cloud infrastructure is a major green flag for investors.
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Real-Life Example: FinTechX, a financial services startup, simplified its infrastructure, saving over $200,000 annually by switching to serverless architecture. Their savvy approach impressed investors, leading to a $15M funding round.
Technical debt is inevitable, but uncontrolled debt can signal future problems. A startup managing its technical debt showcases a proactive approach toward long-term growth.
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“The best way to handle technical debt is to make it transparent. Our investors appreciated the honesty and clarity about future improvements.” — Ryan Chen, CTO of GreenTechStart.
A key factor for investors is understanding how well your product aligns with market needs. Startups with a well-defined product-market fit are three times more likely to secure funding than those without.
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Case Study: EcoDrive, a green mobility startup, made an impressive case for their product-market fit by compiling testimonials from key corporate clients. They saw a 25% increase in customer adoption within a year, which led to a $12M Series A round.
Investors want to ensure that your tech is proprietary or that you hold the proper licenses for third-party assets.
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Real-Life Example: In 2022, SecureNet, a cybersecurity startup, faced delays during their acquisition due to unresolved IP issues. With their IP rights tangled in co-ownership agreements, they spent nearly three months untangling ownership. The process cost them $50,000 in legal fees and caused investor hesitation.
Investors often assess the team as thoroughly as the tech. Are the founders committed? Is the team capable of scaling?
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Fun Fact: A 2023 LinkedIn report found that startups with a solid culture fit were twice as likely to receive funding than those with high turnover rates or poor team structure.
A clear vision and culture are attractive to investors who want to see if your team is mission-driven. According to CB Insights, 23% of startups fail due to the wrong team composition.
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For SaaS startups, the customer support process is critical. An efficient support process with detailed documentation assures investors of customer satisfaction.
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Case Study: ServiceNow implemented a well-documented and efficient support system, which investors saw as a competitive advantage, helping them secure significant funding.
The sustainability of tech-related expenses like cloud infrastructure and software licenses can indicate operational health. Investors want to see a clear correlation between tech investment and value.
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Example: Dropbox’s switch to a proprietary data storage system saved them $74.6 million, making their cost structure far more attractive to investors.
Let’s read the challenges and solutions in tech due diligence together:
Solution: Start by documenting code, policies, and processes consistently. Basecamp, a project management platform, uses an internal system to update documentation regularly, helping it streamline due diligence for each funding round.
Solution: Schedule regular audits. To reassure investors, Slack increased safety spending during its IPO preparations, such as end-to-end encryption and multifactor authentication (MFA).
Technical debt can hold a startup back during due diligence. Investors are aware of the long-term costs and may hesitate to invest.
Solution: Create a technical debt roadmap that outlines a gradual plan for reducing it. Highlighting your proactive approach to technical debt can increase investor confidence.
Let’s look into how to prepare for a due diligence meeting:
An impressive presentation shows both transparency and preparedness. Ensure you cover these essentials:
Fun Fact: According to Forrester, startup presentations that included real-time demos saw a 40% boost in investor engagement.
Tech investors typically ask pointed questions to assess preparation and resilience. Run through mock interviews, addressing topics like:
Tech due diligence is essential for startups trying to raise capital, get bought out, or expand. Here are a few examples from real life where careful due diligence made a significant difference:
Challenge: Intercom faced challenges in demonstrating its tech stack and security infrastructure during early acquisition talks
Tech Due Diligence: The company focused on documenting its code, ensuring security protocols, and clarifying IP ownership.
Impact: By raising $125 million in a Series D round, Intercom set itself up for future expansion and acquisition.
Challenge: Slack had to demonstrate its scalability, security, and operational effectiveness as it got ready for its 2019 initial public offering.
Tech Due Diligence: Slack handled global compliance needs, maximized scalability, and made investments in strong security measures.
Impact: Slack raised $23 billion during its IPO, with its strong tech infrastructure instilling investor confidence. It was later acquired by Salesforce for $27.7 billion, thanks to its solid foundation
Challenge: Zoom had to show it could manage rapid growth during the COVID-19 pandemic
Tech Due Diligence: Zoom expanded its cloud infrastructure, ran load tests, and strengthened security.
Impact: Zoom became a leader in video conferencing and achieved a $100 billion market valuation by the end of 2020 as a result of its thorough tech due diligence.
Challenge: Typeform had to ensure compliance with GDPR while securing Series C funding in 2020.
Tech Due Diligence: The business concentrated on improving security, carrying out audits, and producing clear documentation.
Impact: Typeform positioned itself for future growth and success in the form-building sector by raising $135 million in Series C funding.
Challenge: GitHub had to prove its scalability and commitment to security during its acquisition talks with Microsoft.
Tech Due Diligence: GitHub demonstrated how it improved its security, cloud infrastructure, and open-source community support.
Impact: After being acquired by Microsoft for $7.5 billion in 2018, GitHub has flourished since joining the Microsoft family.
Startup owners may find the tech due diligence process challenging, but it’s also an excellent opportunity to showcase your company’s advantages, expansion potential, and future goals. Apart from preparing your business for funding or acquisition, you’ll also lay the groundwork for long-term development and success by concentrating on important matters like code quality, security, system setup, IP protection, team stability, and financial health.
At YeasiTech, we know how important the tech due diligence process is, and we’ve seen how a clear and thorough approach can make a big difference. Our experience helping startups through technical evaluations has allowed many founders to set their companies up for success. With the right preparation and mindset, you can turn due diligence into a chance to strengthen your startup’s future and gain the trust of investors or potential buyers.
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A startup’s technology infrastructure, code quality, security procedures, intellectual property, and scalability are all carefully evaluated during tech due diligence. Acquirers or investors evaluate the technology’s stability, security, and potential for expansion.
Make sure your code is clear and well-documented, put strong safety protocols in place, optimize your infrastructure for scalability, and keep accurate IP and compliance records in order to be ready for tech due diligence. Building investor confidence in these areas requires transparency.
Investors can evaluate the possible risks and benefits of funding a business with the support of tech due diligence. It gives them information on the product’s technological feasibility, scalability, and security—all important aspects that affect long-term success.
Poorly documented code, security flaws, regulatory noncompliance, antiquated tech stacks, and ambiguous intellectual property ownership are common issues. Delays or unsuccessful transactions can be avoided by addressing these concerns prior to due diligence.
Tech due diligence typically takes between 2 to 6 weeks, depending on the complexity of the startup’s technology and the thoroughness of the evaluation. However, being well-prepared can expedite the process and improve the chances of a successful outcome.
YeasiTech is a trusted IT service partner with 8+ years of experience, empowering 250+ businesses with scalable web, mobile and AI solutions.
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