The slides landed, then the technical review began
The pitch went well, and the investor is interested. At the next stage, they’ll send their own technical expert to go through the code, servers, team, and documents. This process is called technical due diligence, and many deals slow down or lose value right here.
The cause is usually not catastrophic: undocumented code, dependence on a single developer, a server with no backups. But for an investor, each of these is a risk, and risk means a lower valuation.
The cause is usually not catastrophic: undocumented code, dependence on a single developer, a server with no backups. But for an investor, each of these is a risk, and risk means a lower valuation.
“An investor bets not on your product as it is today, but on whether it can handle 10x growth tomorrow.”
6 areas that get checked
Architecture and scalability
If the number of users grows 10x, will the system hold up? Which part will fail first?
Code quality
Is the code readable, are there tests, is version control (Git) set up properly? How quickly can a new developer get up to speed?
Security
How are passwords and keys stored, is user data protected, and when were vulnerabilities last checked?
Infrastructure
Servers, backups, monitoring. If the system goes down, how long does recovery take?
Intellectual property
Who owns the code? Were rights transferred to the company in agreements with freelancers and contractors? Which licensed libraries are in use?
Team and knowledge
Does only one person understand the system? What happens if they leave? Is there documentation?
What does preparation give you?
1. A faster deal
You have ready answers to the questions, so the review takes days, not weeks.
2. A better valuation
Less risk means the investor finds fewer reasons to push the valuation down.
3. A stronger product
The problems found during preparation would have needed fixing even without an investor.
3 steps to start right now
1. Transfer assets to the company
The code repository, domain, servers, and service accounts should be in the company’s name.
2. Document the minimum
An architecture diagram, instructions for running the system, and the reasons behind key decisions. A few pages are enough.
3. Run an independent audit
Have an outside expert review the product before the investor does, and fix the most serious problems.
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