Technology considerations for startup fundraising
Technical due diligence has become increasingly rigorous in venture capital. According to PitchBook data, technical issues are a factor in 23% of failed Series A deals. Understanding what investors look for in your technology can make the difference between closing your round and getting passed on.
The technical due diligence landscape
According to First Round's research, technical team quality is the second most important factor in early-stage investment decisions, after market opportunity.
What investors evaluate
Team
Technical leadership, team composition, hiring plan
Architecture
Scalability, tech stack choices, technical debt
Product
Development velocity, quality, roadmap execution
Security
Data protection, compliance, vulnerability management
IP
Proprietary technology, patents, defensibility
Infrastructure
Reliability, costs, operational maturity
Stage Matters: What investors evaluate varies by stage. Seed: team and product potential. Series A: product-market fit and initial scaling ability. Series B+: scalability and operational excellence.
Technical team assessment
Technical Team Evaluation Factors (%)
Technical Founder or Strong CTO
Ideally a technical co-founder. If not, a CTO with domain expertise and startup experience.
Balanced Team
Right mix of senior and junior engineers. Can attract talent.
Clear Hiring Plan
Know what roles you need and when. Have a pipeline.
Engineering Culture
Code reviews, testing practices, documentation habits.
Architecture red flags
Architecture Assessment: Red Flags vs Green Flags
| Feature | Green Flags | Yellow Flags | Red Flags |
|---|---|---|---|
| Scalability Plan | ✓ | ✓ | ✗ |
| Modern Tech Stack | ✓ | ✓ | ✗ |
| Testing Coverage | ✓ | ✗ | ✗ |
| Documentation | ✓ | ✗ | ✗ |
| Security Practices | ✓ | ✓ | ✗ |
| Monitoring/Observability | ✓ | ✗ | ✗ |
Technical Debt is Expected: Investors understand startups take shortcuts. What matters is awareness—do you know your technical debt and have a plan to address it?
Security and compliance readiness
Compliance Requirements by Sector
Intellectual property considerations
Code Ownership
All code written by employees/contractors is company-owned. IP assignments in place.
Open Source Compliance
Understand licenses of all open source dependencies. No GPL in SaaS core.
Trade Secrets
Proprietary algorithms, data, or processes that provide competitive advantage.
Patents
Consider patents for truly novel technology. Provisional patents are affordable.
Development velocity metrics
Development Velocity Trends to Show
Preparing for due diligence
Data Room
Architecture docs, org chart, tech roadmap ready
Metrics
Uptime, velocity, bug rates documented
Code Quality
Clean up critical paths, address obvious issues
Security Audit
Basic penetration test, vulnerability scan
Demo Environment
Stable demo that showcases key features
Team Prep
Engineers ready to discuss architecture decisions
Common due diligence questions
Frequency of Due Diligence Questions (%)
Stage-specific expectations
Technical Expectations by Funding Stage
| Feature | Seed | Series A | Series B+ |
|---|---|---|---|
| Working Product | ✓ | ✓ | ✓ |
| Production Stability | ✗ | ✓ | ✓ |
| Security Compliance | ✗ | ✗ | ✓ |
| Scalability Proven | ✗ | ✗ | ✓ |
| Engineering Process | ✗ | ✓ | ✓ |
| Technical Leadership | ✓ | ✓ | ✓ |
FAQ
Q: How important is the tech stack choice? A: Less than you think. Investors care more about execution than specific technologies. That said, exotic choices that make hiring hard or mainstream choices that show pragmatism both send signals.
Q: Should we be worried about technical debt? A: Every startup has technical debt—investors know this. Be honest about it, show you understand it, and have a reasonable plan. Hiding debt is worse than having it.
Q: Do we need SOC 2 before Series A? A: Usually not required for Series A, but increasingly expected for Series B, especially for B2B SaaS. Starting the process shows maturity.
Q: How do technical team interviews work? A: Expect investors to talk with your CTO/VP Eng, and possibly senior engineers. They'll ask about architecture decisions, challenges, and future plans. Prepare your team.
Sources and further reading
- First Round Capital: Technical Due Diligence
- Y Combinator: Series A Guide
- a16z: Technical Diligence for Startups
- Carta: Fundraising Data
- OpenView: Software Benchmarks
Prepare for Technical Due Diligence: A strong technology foundation can accelerate your fundraising and improve terms. Our team helps startups prepare for technical due diligence and address gaps before they become issues. Contact us to discuss your fundraising readiness.
Preparing for fundraising? Connect with our technical advisors to strengthen your technology positioning.
