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Due Diligence Checklist: What Investors Verify About Your Software Before Funding

You pitched. The investor liked it. Now comes due diligence. This is where deals die quietly. Here is what investors actually verify about your software and what you can do before they ask so nothing blows up the round.

What Due Diligence Actually Means for a Software Startup

Due diligence is the investor's process of verifying that what you claimed in the pitch is true. For a software company, this falls into four categories: technical, security, legal, and commercial. Most founders prepare for the legal and commercial parts. The technical and security parts catch them off guard.

Technical Due Diligence: What They Check

An investor may bring in a technical advisor or send a questionnaire. Here is what they verify:

• Code ownership. Who wrote the code? Do you own it outright? If a contractor built it, does the contract include IP assignment?
• Architecture review. Is the architecture sane? Not perfect, but not a mess that will cost $200K to refactor in 6 months.
• Technical debt. Is the code maintainable? An MVP with shortcuts is fine. An MVP with no structure at all is a red flag.
• Deployment and hosting. Where does it live? Can someone else run it, or is it on your laptop?
• Source control. Is the code in Git? Is there a commit history? No version control is an instant deal killer.
• Documentation. Is there a basic README? API docs? Anything that lets a future engineer understand the system?

Security Due Diligence: What They Check

For security-focused investors or any investor whose portfolio companies handle user data, security due diligence is becoming standard even at pre-seed:

• Data handling. What user data do you collect? Where is it stored? Who has access?
• Authentication. How do users log in? Are passwords hashed? Is there session management?
• API security. Are your API endpoints authenticated? Are there rate limits?
• Dependency security. Are your dependencies up to date? Are there known vulnerabilities in your stack?
• SSL and TLS. Is traffic encrypted? Are certificates valid and current?
• DNS and email security. Do you have SPF, DKIM, and DMARC records? These are basic security hygiene.

If any of this sounds unfamiliar, that is exactly the problem investors will find. We run security assessments on software products specifically to prepare founders for this conversation. Get a free security assessment before an investor finds the gaps for you.

Legal Due Diligence: Software Specifics

• IP assignment. Every contributor, including contractors and freelancers, must have signed IP assignment. No exceptions.
• Open source compliance. What open source libraries are you using? Are the licenses compatible with commercial use?
• Data privacy. Do you have a privacy policy? Is it accurate? Are you compliant with the regulations in your market?
• Terms of service. Do you have terms? Do they cover liability, data, and usage rights?

Commercial Due Diligence: Traction Verification

• Investors will call your pilot customers. Make sure those customers know and are prepared.
• If you claimed revenue, have bank statements ready.
• If you claimed a waitlist, have the actual list with emails.
• If you claimed partnerships, have the signed agreements.

The Due Diligence Preparation Checklist

Before you pitch, have these ready in a data room:

1. Source code in a private Git repository with clean commit history
2. IP assignment agreements from every contributor
3. List of all dependencies with license types
4. Architecture diagram (one page, hand-drawn is fine)
5. Security assessment results (SSL, headers, DNS, vulnerabilities)
6. Privacy policy and terms of service
7. Pilot customer contacts with their permission to be called
8. Hosting and infrastructure documentation

What Kills Deals During Diligence

• The code was built by a contractor with no IP assignment. The investor cannot fund a company that does not own its own software.
• The product has obvious security vulnerabilities that the founder did not know about. It signals carelessness.
• The "users" are friends and family, not real customers. When investors call and get vague responses, trust evaporates.
• The architecture is so tangled that the investor's technical advisor estimates 6 months of refactoring before any new features can be built.

Due diligence does not have to be scary. It is a checklist. If you prepare for it before you pitch, it becomes a formality instead of a trap. Talk to us about preparing your software for investor due diligence.