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Beyond the Code: What Investors Miss in Tech Due Diligence

Tech Due Diligence What's Missing?

Tech due diligence is often seen as a forensic exercise—sift through the codebase, check for scalability, security, and documentation, then stamp it as ‘investable’ or not. But here’s the truth: code is only half the story. If investors want to make informed decisions, they need to look beyond what’s written in the repo and assess the people, processes, and hidden risks lurking beneath the surface. Let’s break down three often-overlooked areas of tech due diligence that can make or break an investment.

1. The Human Factor in Code: Why the ‘Who’ Matters as Much as the ‘What

A startup’s technology is a direct reflection of its team—their mindset, habits, and approach to problem-solving. Yet, many investors focus purely on technical quality without assessing the people behind it. Who wrote the code? How do they communicate? Will they survive a merger or scale-up?

One of the simplest, yet most revealing, checks in due diligence is analysing team dynamics. A company’s Slack history, for example, can tell you more than any architectural review. Is there open collaboration, or does everything funnel through one person? Are issues discussed transparently, or are engineers firefighting in private messages? A high-performing team operates with trust and accountability—if that’s missing, expect problems post-acquisition.

Another red flag? The ‘key man’ risk. If a startup’s technology is dependent on one or two key engineers, that’s a massive liability. If they walk, does the business grind to a halt? Investors should assess whether knowledge is shared across the team or siloed in the minds of a few.

The real question isn’t just whether the tech is sound today—it’s whether the team can maintain, evolve, and integrate it in the long term.

2. The Real Cost of Technical Debt (That No One Talks About)

Technical debt isn’t just about messy code. It’s about the compounding cost of poor decisions—ones that slow development, increase risk, and reduce exit valuations.

A common startup mantra is ‘move fast and break things.’ The problem? When ‘breaking things’ becomes the standard operating procedure. Poorly architected systems can turn into an unsellable mess, where simple changes require monumental effort. Due diligence needs to identify whether a company’s tech debt is manageable or if it’s a silent killer.

Here’s what often gets overlooked:

  • Process debt – Is the team reliant on outdated development practices? Are they lacking proper testing and CI/CD pipelines? This isn’t just an efficiency issue; it affects the speed and cost of future scaling.
  • People debt – Have poor hiring choices or high turnover created knowledge gaps? Investors often focus on senior leadership but forget to assess the engineering team’s stability.
  • Legacy thinking – Is the team clinging to old frameworks, rigid architectures, or homegrown solutions that will struggle to integrate into modern platforms? This can be a major roadblock to future growth.

Technical debt can absolutely impact valuation. If the acquirer needs to rewrite major parts of the platform post-deal, they will factor that cost into negotiations. The earlier investors uncover these issues, the better they can mitigate risk.

3. Open Source Nightmares: The Hidden Risks in Startups’ Codebases

Open source software has fuelled innovation, but it’s also introduced a minefield of hidden risks that too many investors overlook.

Startups frequently rely on open source to accelerate development, but blind reliance can be dangerous. Here’s why:

  • License mismanagement – Does the startup actually have the right to use all the libraries in its stack? Misuse of open-source licenses (e.g., GPL, AGPL) can turn into a legal nightmare post-acquisition.
  • Dependency risk – Is the company reliant on unsupported or niche open-source projects? If a critical library is maintained by a single developer in their spare time, that’s a ticking time bomb.
  • Security exposure – Open source components often have known vulnerabilities. If due diligence doesn’t include a thorough dependency audit, investors could be buying into serious security liabilities.

One of the biggest tech DD misses? Startups presenting themselves as ‘AI-first’ or ‘deep tech’ when in reality, their core technology is just an API wrapper around open-source tools. If the ‘proprietary’ code is less than investors think, the valuation should reflect that.

Some more useful info here: Uncovering Risks of Open-Source Software: A Technical Approach to M&A Due Diligence

The Bottom Line for Investors

Tech due diligence is evolving. It’s no longer enough to just look at code quality and architecture. Investors need to assess the people behind the technology, the hidden cost of poor technical decisions, and the risks buried in open-source dependencies.

The best deals are made when investors ask the right questions. Who’s really driving the technology? Can it scale without major rework? Is the company’s reliance on open-source a strength or a risk? The answers to these non-obvious questions are what separate good investments from costly mistakes.

Picture of Hutton Henry
Hutton Henry
Hutton has worked with Private Equity Portfolio firms and Private Equity funds since 2015. Having previously worked in post-merger integration for large firms such as Ford and HP, Hutton understands the value of finding issues prior to M&A deals. He is currently the founder of Beyond M&A and provides technology due diligence for VC, PE and corporate investors, so they understand their technology risks before entering into a deal.

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