Technical Due Diligence: How to Prepare Your Codebase for Investor Review

The Investor's Lens: The Three Core Questions Behind Every Technical Audit

Preparing for technical due diligence can feel like cramming for a final exam you didn't know you had. Your team has been focused on building a product and finding market fit, not curating a perfect codebase for investor scrutiny. The good news is that investors aren't expecting perfection. They are conducting a future-facing risk assessment, not a historical judgment on every shortcut you took to build your MVP. This process is your opportunity to demonstrate engineering maturity and a clear plan for growth. An investor's technical review aims to answer fundamental questions about your company's ability to scale, its hidden liabilities, and its long-term maintainability. This guide provides a practical framework for how to prepare your codebase for investor due diligence, addressing the core concerns that can stall or devalue a funding round.

Technical due diligence isn't about passing a white-glove inspection; it’s about providing confident answers to three core questions that underpin an investor's risk assessment. Every document you prepare and every conversation you have should be aimed at addressing these points directly.

• Can this product and team scale efficiently with our capital? Investors want to know their money will fuel growth, not fund a complete rewrite. They are assessing if your architecture can handle increased load and if your team can add features without breaking the existing system.
• Is there a hidden liability we’re about to inherit? This covers everything from critical security vulnerabilities and data privacy missteps to intellectual property risks from restrictive open-source licenses. This is a critical part of any technical risk assessment.
• Is the system well-understood and maintainable? Investors need to know if the platform is a well-documented asset or a 'black box' that only one or two key people understand. A lack of clarity here implies a high cost for onboarding new engineers and a significant risk if key personnel leave.

Answering these questions with clear evidence builds the confidence they need to invest, proving your technical foundation is as solid as your business plan.

How to Prepare Your Codebase for Investor Due Diligence on Scalability

To prove your product can scale, you need to show investors that you understand your own system and have a deliberate plan to manage its evolution. This begins with clear documentation of your architecture, a mature approach to technical debt, and an awareness of your system's performance characteristics.

Software Architecture Review: Creating the 15-Minute Understanding

A high-level architecture diagram is one of the most valuable documents you can create. The goal is a '15-Minute Understanding' that allows a technical reviewer to grasp your system's design quickly without needing to read a single line of code. Using tools like Miro, Lucidchart, or a diagrams.as.code approach, this diagram should illustrate:

• The major services or components of your application (e.g., web frontend, API gateway, authentication service).
• The primary data stores (e.g., PostgreSQL database, Redis cache, S3 for object storage).
• Key third-party dependencies and APIs (e.g., Stripe for payments, Twilio for communications).
• The general flow of data for a core user action, like signing up or making a purchase.

This simple document demystifies your stack and serves as a roadmap for deeper conversations. It shows you have a coherent vision for your system, which is a powerful signal of engineering leadership.

Managing Technical Debt Proactively

Investors know that early-stage codebases are imperfect. The distinction they look for is between unmanaged chaos and proactively managed debt. Instead of hiding it, document it. A simple TECH_DEBT.md file in your repository or a dedicated epic in your issue tracker can be incredibly effective. A scenario we repeatedly see is that a well-documented list of known issues builds more trust than pretending none exist. A structural example of a TECH_DEBT.md file might include sections for:

# Technical Debt Log

## Known Architectural Issues
- **Monolithic Service:** The primary API service is monolithic and couples user management with product logic. This blocks parallel team development on feature X and Y.
- *Proposed Solution:* Plan to extract user management into a separate service in Q3.

## Refactoring Priorities
- **Payment Processing Logic:** The current payment module is complex, lacks sufficient test coverage, and is difficult to modify.
- *Impact:* Slows down the integration of new payment providers.
- *Proposed Solution:* Refactor into a state machine pattern with 90% test coverage by end of Q2.

## Outdated Dependencies
- **Core Framework:** The main web framework (e.g., Django, Rails) requires a major version upgrade.
- *Risk:* The current version will lose security support in Q4.
- *Proposed Solution:* Allocate sprint capacity for the upgrade before the deadline.

This approach transforms technical debt from a hidden liability into a managed part of your roadmap, showing investors you have a clear-eyed view of where your platform needs to improve.

A Technical Audit Checklist for Security, Compliance, and IP

Investors are fundamentally risk-averse, and hidden technical liabilities can kill a deal. Proving you are a responsible steward of your platform and customer data is non-negotiable. This involves managing vulnerabilities, understanding license obligations, and documenting your data handling practices.

Vulnerability Management and Your Software Supply Chain

Your codebase is not just the code you write; it includes all the open-source libraries you depend on. Research from Sonatype shows that "96% of codebases contain open-source components." Each dependency is a potential vector for security issues. Proactive security management is a powerful signal of maturity. Use automated tools like GitHub Dependabot, npm audit, or Snyk to continuously scan for known vulnerabilities. Presenting reports from these tools, along with a clear process for triaging and patching critical issues, shows you are not flying blind. A simple vulnerability management policy can be as straightforward as: "We scan dependencies daily, patch critical vulnerabilities within 7 days, and high-severity ones within 30 days."

Open-Source License Compliance and IP Risks

Beyond security, open-source licenses themselves can pose a significant intellectual property risk. As a guiding principle, be aware that "Restrictive open-source licenses, such as AGPL, can create IP issues for investors." These "copyleft" licenses can require you to make your own proprietary code open source if it is derived from or linked with the licensed component. This can be fatal to a company's valuation. To pre-empt these concerns, create an inventory of your key dependencies and their licenses, often called a Software Bill of Materials (SBOM). Tools like FOSSA or Snyk License Compliance can automate this. Highlight that your core dependencies use permissive licenses like MIT, Apache 2.0, or BSD, which do not impose such obligations.

Security Documentation for Investors: PII and Secrets Management

How you handle sensitive data is a critical component of the due diligence process. Your documentation must clearly answer key questions, especially because "Data-privacy regulations like GDPR must be considered when handling PII." In both the UK (with GDPR) and the US (with regulations like CCPA), your obligations are significant. Create a simple PII data flow diagram that answers:

• What Personally Identifiable Information (PII) do you collect?
• Where is it stored (e.g., which databases, which geographic regions)?
• How does it flow through your systems during key operations?
• Who has access to it?

Finally, demonstrate strong operational security. Document your production access controls (e.g., role-based access control, mandatory MFA, audited access logs) and your secrets management strategy. How are API keys, database credentials, and other secrets stored and rotated? Using a dedicated service like AWS Secrets Manager or HashiCorp Vault is a strong positive signal. When you need to share sensitive information, always use a secure VDR.

Proving Maintainability with Developer Documentation and Team Processes

An investment is a bet on future growth, which requires hiring more engineers. If your system is a tangled mess that only the founding team understands, every new hire becomes a drain on productivity. This is where maintainability comes in. The cost of a poorly documented system is staggering; developers already "spend over 17 hours a week on maintenance like debugging." (Stripe, 'The Developer Coefficient,' 2018). Your goal is to show investors their capital will be spent on building new features, not on deciphering old ones.

Developer Documentation for Due Diligence: More Than a README

For most Pre-Seed to Series B startups, you don't need encyclopedic documentation. You need enough to make a new engineer productive within a reasonable timeframe. This developer documentation is the blueprint that proves your system is not a 'black box'. Your primary repository's README.md should be the front door for any new developer and contain:

• A concise description of the repository's purpose.
• Prerequisites for setting up the local development environment.
• Step-by-step instructions to get the application running locally.
• An overview of the development workflow (e.g., branching strategy, running tests, submitting a pull request).
• Links to key resources, like the architecture diagram or API documentation.

Code Quality, Testing, and CI/CD

Automated testing and continuous integration provide concrete signals of quality and process maturity. While a high percentage isn't the sole objective, having "a reasonable baseline for code coverage for key services is 60-70%" shows that you value stability. More importantly, it demonstrates you have processes in place to prevent regressions. Reports from your testing framework provide tangible evidence of this commitment. Your CI/CD (Continuous Integration/Continuous Deployment) pipeline is also a key artifact. A well-configured pipeline that automatically runs tests, linting, and security scans on every code change shows discipline and reduces the risk of shipping bugs to production.

Assessing Team Processes and Knowledge Distribution

Investors are also assessing the "bus factor": how many people could get hit by a bus before the project is in serious trouble? If all critical knowledge resides in one or two founders' heads, it's a major risk. You can demonstrate that knowledge is distributed through your team's processes. Point to your pull request history, which should show active code reviews with meaningful comments from multiple team members. If you use Architecture Decision Records (ADRs) to document significant technical choices, share them. These practices prove that your system is well-understood and can be effectively maintained and scaled by a growing team.

Key Artifacts by Funding Stage: A Practical Summary

Preparing for a technical audit is not about achieving an impossible standard of perfection. It’s about demonstrating maturity, foresight, and a credible plan for scaling your technology. The level of expectation varies by funding stage, but the underlying principles remain the same.

Pre-Seed and Seed Stage Expectations

At the Pre-Seed and Seed stages, investors are primarily looking for fundamentals. They understand the code may be imperfect, but they need to see a solid foundation and a team that understands its own technology. Focus your limited time on the highest-impact artifacts: a clear architecture diagram, a documented approach to technical debt, and a basic understanding of your security and open-source license risks. Your story and plan are as important as your code.

Series A and Beyond: Demonstrating Mature Processes

By Series A and B, expectations increase significantly. Investors will want to see that the plans you described earlier have been put into practice. This means more mature processes for security patching with evidence of execution, more comprehensive testing strategies with reasonable coverage, and clearer documentation to support the onboarding of a rapidly growing team. Your ability to demonstrate repeatable, scalable engineering processes becomes a core part of the evaluation. Use a clear timeline to manage this process alongside other diligence streams.

Regardless of your stage, the core task is to build confidence by answering the three fundamental questions: Can it scale? Are there hidden liabilities? And can the team maintain it? This proactive and organized approach shows you’re ready to build the future, not just fix the past. For more resources, see our investor due diligence hub.

Frequently Asked Questions

Q: What is the biggest red flag you see in a technical due diligence code review?
A: The most significant red flag is a lack of awareness. This could be a team that doesn't know what open-source licenses they are using, has no process for tracking security vulnerabilities, or cannot explain their own architecture. The problem isn't having issues; it's not knowing they exist or having no plan to address them.

Q: How much of our code do investors actually look at?
A: Reviewers typically do not read the entire codebase. They strategically sample key areas based on the architecture diagram and documentation you provide. They often focus on complex business logic (like payment processing), authentication and authorization code, and areas where you have documented significant technical debt.

Q: We used a lot of contractors to build our MVP. How should we prepare for that?
A: Be transparent about it. The main concern for investors will be intellectual property ownership. Ensure you have clear, signed IP assignment agreements from every contractor that state all work created belongs to the company. Proving clear ownership of the code is more important than who wrote it.

Q: What if our test coverage is very low?
A: Don't panic or try to quickly ramp it up just for due diligence. Instead, acknowledge it as a form of technical debt. Document a realistic plan to improve coverage in critical areas of the application over the next few quarters. Showing a thoughtful, prioritized plan is much better than having no plan at all.