Code Meets Capital

Code Meets Capital

How Software Companies Can Get Due Diligence Ready

When a software company enters a transaction process, whether raising growth equity or pursuing an exit, the technical due diligence phase often becomes a stress test. Investors don’t just want to understand what your product does; they want confidence that the technology powering your business can scale, adapt, and sustain value over time.

Too often, diligence uncovers surprises: missing documentation, brittle infrastructure, or security blind spots. These issues don’t just slow the deal, they can impact valuation or even kill a transaction. The good news: with deliberate preparation, engineering leaders can turn diligence from a defensive exercise into a demonstration of strength.

Here is a Due Diligence Readiness Checklist for Software Companies

Here’s how:

1. Documentation: Build the Single Source of Truth

Most diligence processes start with a “data room” request list. If you can’t respond quickly with clear, accurate materials, investors will assume there are deeper gaps in your technology organization.

Where to focus:

Cloud vendor lock-in isn’t always bad, it’s often a smart trade-off. At early and growth stages, using managed services accelerates time-to-market and reduces engineering overhead, which typically outweighs portability concerns. It becomes problematic when it limits customer adoption (e.g., multi-cloud requirements), erodes negotiating leverage, or makes future re-architecture prohibitively expensive. The key is to show investors you’ve quantified the trade-off: lock-in is acceptable if it delivers efficiency today and you understand the cost to mitigate later.

Action Step:

Treat documentation as part of your engineering asset base, not an afterthought. Well-maintained artifacts signal a disciplined culture.

2. Code Quality: Show, Don’t Tell

Investors rarely read code but they do bring in specialists who will. The goal isn’t to prove your code is “perfect” (it never is), but to show that it’s manageable, maintainable, and improving over time.

Where to focus:

Action Step:

Run your own internal “mock diligence” code review six months before a deal. Address quick wins and prepare narratives for longer-term debt.

3. Cloud & Infrastructure: Demonstrate Maturity

Cloud operations are where scalability and resilience show or fall apart. Investors want to know if your architecture can handle growth without massive reinvestment.

Where to focus:

Action Step:

Align your infrastructure story to business growth. Be ready to answer: Can this platform support 5x more users without re-architecting?

4. Security & Compliance: Eliminate Unknowns

Security is no longer optional, it’s table stakes. Any hint of negligence here can cause an investor to pause or reduce valuation.

Where to focus:

A penetration test (pentest) is a simulated cyberattack conducted by security professionals to identify vulnerabilities in your systems, applications, or infrastructure before real attackers can exploit them. Unlike automated scans, pentests use human-driven techniques to mimic how adversaries might breach defenses, escalate access, or exfiltrate data. The outcome is a report detailing exploitable weaknesses, their severity, and recommended remediations. This provides both a security baseline and proof of due diligence for customers and investors.

Action Step:

Treat security hygiene like financial hygiene: measurable, recurring, and reportable. Investors assume discipline in one area reflects discipline in others.

5. Team & Process: Highlight Strength, Not Fragility

Investors assess not just the product, but the team that builds it. They want to know if your engineering organization is resilient and scalable or overly dependent on a handful of heroes.

Where to focus:

Action Step:

Anticipate “key person risk” questions. Investors will probe whether losing one engineer could cripple the product.

6. Product Roadmap: Align Technology with Business Value

Diligence isn’t just about what you’ve built. It’s about where you’re going. Investors want to see that your technology strategy supports growth, not just survival.

Where to focus:

There’s no universal “perfect” split because it depends on company stage, product maturity, and market pressures. That said, there are healthy benchmark ranges for growth stage companies that investors look for: Innovation around 50-65%, Maintenance 20-30%, and Tech Debt Reduction (15-20%).

Action Step:

Build a clear, business-aligned story: Here’s what the next 18 months look like, why it matters commercially, and how the tech will deliver it.

Executive Takeaway

Technical due diligence isn’t just about surviving scrutiny. It’s a chance to prove that your engineering team is building a durable, scalable business asset.

For CTOs and engineering leaders, preparation is about discipline: having documentation that tells your story, metrics that validate your claims, and a roadmap that connects technology to business outcomes.

For executives and investors, the presence or absence of these signals becomes a proxy for valuation. A well-prepared company earns confidence, accelerates the deal timeline, and positions itself for faster post-close execution.

In short: readiness in engineering is readiness for the deal.

It’s worth remembering that due diligence exercises shouldn’t be viewed as contentious. It's not common that technical due diligence results in a deal being cancelled. More often, its purpose is to help buyers understand the asset they’re acquiring so they can maximize its value post-close, whether through product expansion, operational improvements, or integration strategies.