Takeaways from Startup Fails in VC Tech:
- Investors use technical due diligence to assess execution risk — not just code quality, but how well your team can scale and deliver reliably.
- Gaps in documentation, architecture, or test coverage signal deeper operational weaknesses that can derail funding.
- Tying engineering milestones to business KPIs shows maturity, strategy, and investor readiness.
Two of the top five reasons startups fail are running out of cash and getting outcompeted, according to CB Insights, and both often tie back to weak technology execution.
It’s no surprise, then, that technical due diligence has become a make-or-break step during funding rounds.
Editor’s Note: This is a sponsored article created in partnership with Outecho.
Investors don’t just want to see that a product exists. They want evidence that it’s scalable, secure, and built on sound engineering practices.
Done well, tech due diligence builds investor confidence. Done poorly, it introduces risk and can sink deals.
To help founders prepare, software development agencies like Outecho, which specialize in building and maintaining digital products, often guide startups through the process — from auditing codebases to aligning technical milestones with business goals.
Here’s what founders need to know to pass tech due diligence with confidence, and how to turn a potential investor concern into a competitive advantage.
1. Execution Risk Is the Real Concern, Not Just the Code
Investors aren’t just scanning for bugs. They’re asking a bigger question: Can this team deliver consistently and grow sustainably?
Weak execution increases the risk that the startup will burn capital without reaching key milestones.
To evaluate this, technical reviewers assess:
- Whether the codebase is maintainable and test-covered
- If the architecture supports future scale
- How deployments are handled (manual vs. automated)
- What security and data protection measures are in place
- Whether the team has solid development processes and documentation
Founders often assume that “working software” equals investor-ready software.
But signs of technical immaturity, like no CI/CD pipeline, poor test coverage, or high tech debt, raise doubts about a startup’s ability to deliver under pressure.
“One of the biggest red flags is when there’s no automated testing or CI/CD process in place. Even if the product works, investors see it as a sign that the team can’t ship reliably or scale. It raises questions about how bugs are caught, how fast you can iterate, and what happens if the core devs leave,” said Benjamin Dzaferovic, CEO of Outecho.
2. Documentation Signals Operational Maturity
Clear, accessible documentation tells investors the team is prepared to scale.
It shows that engineering knowledge is not siloed, and that the company can hire, onboard, and grow without hitting bottlenecks.
From an investor’s view, documentation reflects:
- How efficiently the team shares knowledge
- How quickly new developers can ramp up
- How resilient the org is if a key engineer leaves
Key artifacts to prepare:
- High-level system architecture diagrams
- API docs and versioning practices
- Deployment and rollback instructions
- Development workflows (e.g., branching strategy, code review protocols)
- Security policies and data handling SOPs
Even lightweight documentation shows maturity and sets you apart from other early-stage teams.
“Founders often underestimate how revealing their Git history can be. Investors will look at commit frequency, test coverage over time, and whether code reviews are actually happening,” said Dzaferovic
“If they see one person pushing code straight to main at midnight without peer review, that’s a process risk.”
3. Link Tech Milestones to Business KPIs
Technical execution doesn’t happen in a vacuum, and investors know it. They want to see that your engineering priorities are directly supporting your company’s growth strategy.
If your roadmap is full of technical upgrades with no clear business impact, it raises red flags about how you’re prioritizing resources.
The best-performing startups treat engineering not just as a build function, but as a growth engine.
To pass diligence, show how your tech investments support:
- Customer acquisition (e.g., performance improvements that reduce bounce rates or support marketing velocity)
- Product-market fit (e.g., experiments enabled by modular code or flexible APIs)
- Revenue and scale (e.g., infrastructure changes that allow for higher concurrency or better user experience under load)
4. Expect a Technical Deep Dive: Code, Security, Processes
Due diligence is thorough because investors are betting on long-term sustainability.
They need to know your stack won’t buckle as usage grows, and that your team has the workflows to support complex growth.
Expect reviewers to assess:
Many startups work with technical partners like Outecho to run internal audits before fundraising, and fixing known issues ahead of diligence can be the difference between a term sheet and a pass.
5. Own Your Tech Debt and Your Plan to Resolve It
No startup is perfect. Investors don’t expect flawless code; they expect awareness and a plan. Ignoring tech debt is riskier than admitting it.
What they want to see:
- A transparent list of known issues
- A plan for prioritizing and resolving them
- A track record of progress across funding rounds
Being honest about constraints shows strategic thinking. It signals that you’re not just building fast; you’re building responsibly.
Final Takeaway: Show That Your Tech Is an Asset — Not a Liability
Startups that pass tech due diligence do more than prove their product works. They show:
- A culture of scalable, maintainable engineering
- Clear alignment between product and business strategy
- The capacity to grow without technical collapse
Investors are looking for signs that your tech will support your trajectory. A thoughtful diligence prep process not only boosts your odds of funding, but also strengthens your startup’s long-term viability.
And if you need help, agencies like Outecho can partner with your team to audit systems, improve architecture, and ensure your tech story inspires confidence.
In today’s market, execution is the differentiator. Your technology should prove you’re ready.
B2B Reporter
Andrea ‘Andi’ Surnit is a writer with over eight years in journalism and marketing. She started her career as a junior news reporter before transitioning to digital marketing at Razza Consulting Group, where she advanced to the role of Lead Writer. Throughout her career, she has cultivated expertise in ad copy, web content, client servicing, social media, and SEO. Currently, Andi writes for Spotlight at DesignRush, covering the latest trends in brand campaigns and agency news.
