What Does a Technical Due Diligence Report Actually Cover?
What a technical due diligence report covers: the investor summary, the full technical report, six areas of evidence, and how to tell a useful report from a box-ticking one.
Wouter Neyndorff
CEO & Co-founder, X-Ray by Scaleflow
Quick answer
A technical due diligence report evaluates whether a target company's technology, product, and engineering organisation can support an investment decision. It typically delivers two key components: an Investor Summary providing the deal team with an investment-ready verdict, risk ratings, and cost estimates for technical debt; and a Full Technical Report giving the target CTO detailed evidence across architecture, code quality, security, team capability, AI readiness, and a prioritized remediation roadmap.
It’s an uncomfortable truth that funds can spend weeks waiting for a 200-page technical due diligence report, only to find that the investment committee (IC) still lacks a clear verdict.
A technical due diligence report tells investors whether a company's product and technology can carry the investment thesis. It covers architecture, security, code quality, delivery, team capability, AI readiness, and product strategy, and should end with an investment-ready verdict and prioritized fixes.
For venture capital investors, that evidence can affect deal conviction and pricing, not to mention terms. Meanwhile, SaaS companies can use it to figure out whether the technology is defensible and scalable.
But getting evidence that supports those conclusions before the deal moves on is no small challenge.
The good news is that Scaleflow built its product and tech due diligence report service around that very problem, both of which take a close look at the actual codebase and translate technical findings into investment decisions.
What a technical due diligence report is for
A technical due diligence report answers these key investment questions:
- Is the technology real, and do the founders' claims hold up against the evidence?
- Is it defensible, or could a competitor reproduce the product relatively easily?
- Can the current architecture and team support the growth that the investment thesis assumes?
- What will it cost, in money and time, to address the weaknesses?
These questions belong in the IC memo. Yet, its technical section is often the weakest part: the deal team writes down what the CTO said and hopes it holds. Interviews and demos show only part of the picture.
The bottom line is that investors need evidence that tests those accounts against the software itself.
When it comes to AI companies, a polished demonstration can conceal third-party model dependence or weak evaluation practices (among other things) that worsen as usage grows. The report should test those claims against evidence and explain what the findings mean for the investment case.
Two parts of a useful technical due diligence report
The report has two audiences: the investment team and the CTO.
Investor summary
The investor summary should let a partner understand the technical position at a glance. So, it should include:
- Verdict and risk rating: Is the technology strong, investable with conditions, or a cause for caution? The report must explain why.
- Five most relevant findings: Focus on risks that could affect the investment thesis, not simply the first five items on a list.
- Cost of technical debt: Estimate remediation effort, time, and cost where possible.
- Crown jewels: Learn how to read technology during technical due diligence, so you can identify what genuinely strengthens the company's position and what risks it.
- Key-person risk: Show whether critical systems depend on one engineer and what would happen if that person left.
- Deal recommendation: Explain which risks should affect the decision and become investment conditions, and which should be managed after closing.
A score of 72 out of 100 means little without criteria and context because a serious scaling risk may be more important than several low-impact code issues.
Full technical report
This second document (or part of the equation, if you will) provides the CTO with evidence behind the verdict: findings and severity ratings, along with consequences across architecture, code quality, security, test coverage, CI/CD, ownership, and delivery.
Yet, almost nobody delivers the full technical report, which is rather puzzling on its own since CTOs value it the most.
Each material finding should answer four questions:
- What was found?
- What evidence supports it?
- Why does it matter?
- What should the company do?
The remediation roadmap should rank work by risk and effort, with owners and timelines for major fixes. Furthermore, the detailed report must support the risks flagged in the investor summary.
David Zwagemaker, Partner at Peak Capital, captures the principle in his assessment of the approach: "Good technical due diligence doesn't end at the summary."
The second report gives the CTO a plan to work from after the investment decision is made.
Six areas a report covers, and what each looks like on the page
The technical due diligence checklist investors actually use covers the questions behind each area. A report should show the evidence and explain what it means for the deal.
| Area | What the report tells you | Evidence a good report shows | Tell of a weak report |
|---|---|---|---|
| Architecture and scalability | Can the system support the growth in the investment thesis? | Dependencies, bottlenecks, relevant load-test results, and estimated remediation cost. | Claim that the system is scalable without evidence tied to expected growth. |
| Security and compliance | Which exposures could create operational, legal, or commercial risk? | Specific vulnerabilities, dependency risks, access-control findings, and relevant security evidence. | List of tools or certifications without an assessment of actual exposure. |
| Code and delivery | How much engineering debt exists, and can the team deliver reliably? | Debt costed by effort and time, test coverage by area, CI/CD practices, and delivery trends. | One coverage percentage with no breakdown. “12% coverage in payments” may be more relevant than the overall figure. |
| Team and organisation | Can the team maintain and develop the product? | Contribution patterns, concentrated knowledge, documentation, and continuity risks. | Headcount without evidence of who owns or understands critical systems. |
| AI readiness | Is the AI capability defensible and economically viable? | Proprietary IP, model evaluation, governance, build-versus-buy choices, and inference costs. | A working demo presented as proof of a durable technical advantage. |
| Product and strategy | Do technical choices support the commercial plan? | Links between architecture, product capabilities, delivery priorities, and growth assumptions. | A technical roadmap disconnected from customers or revenue. |
Scores should clarify findings. A low score in one area may have a greater importance than a high average if it exposes a risk to the investment thesis.
What the report should hand to the rest of due diligence
Technical findings are often present in more than one part of the transaction. With that in mind, consider these four examples:
- Open-source licences belong in legal due diligence: The report should flag relevant licence obligations for legal review.
- Code ownership needs legal verification: Repository history can reveal that former employees or freelancers built important modules. If the company can’t produce the relevant IP assignment agreement, legal counsel needs to investigate ownership before the deal proceeds.
- Technical debt belongs in the financial model: If remediation needs six months of engineering work, that estimate should inform hiring and cash requirements and amend the post-investment roadmap, with assumptions stated.
- AI infrastructure costs belong in unit economics: A product relying on subsidised credits may have a different cost profile when those credits expire or usage grows. Investors need to understand how that could affect margins.
These handoffs turn the report into part of the investment process. Often, teams treat it as nothing more than a document to skim and file.
How the report changes with stage and investment thesis
The same technical finding can mean different things at different stages. A small amount of technical debt may be reasonable in a pre-seed company, but the same debt could be a serious concern in a Series B business whose valuation assumes rapid enterprise expansion.
| Stage | What the report should emphasize |
|---|---|
| Pre-seed and seed | Team capability, architecture fundamentals, product feasibility, and early technical debt. Can this team build what it has promised? |
| Series A and B | Readiness for growth, remediation costs, security, delivery performance, and key-person risk. Can the company support the next stage without a costly rebuild? |
| Series C and beyond | Engineering maturity, integration risk, and a funded post-investment roadmap. Can the business sustain growth and absorb more complexity? |
Here, it’s important to remember that the investment thesis determines which findings deserve the most attention.
For enterprise software, the question may be whether the architecture can support projected customer volumes.
With AI startups, investors need to understand if the company owns defensible IP or wraps third-party models. A wrapper can still be viable, but the investment case must account for how easily competitors could reproduce it.
For a high-margin business, the report should flag infrastructure service and remediation costs that could undermine the model.
A useful report makes those connections crystal clear. It assesses the technology against the business the fund intends to finance, which differs quite a bit from merely applying the same priorities to every company.
Speaking of usefulness:
How to tell a useful report from a box-ticking one
Now, there may be times when a software due diligence report looks the part, but still fails the deal team. To make sure that doesn’t happen, use the following comparison to judge what you've received.
| Weak report | Useful report |
|---|---|
| Examines a sample of the codebase | Scans the entire codebase within the agreed scope and states any access limitations |
| Relies on interviews and self-reported metrics | Tests claims against repository evidence, automated checks, and operator review |
| Lists findings without a verdict | Ranks risks and connects them to the investment thesis |
| Gives scores without explaining them | Shows the evidence and scoring logic behind each rating |
| Identifies debt without estimating the cost to fix it | Estimates remediation effort and explains the assumptions |
| Writes only for engineers or only for the IC | Gives investors a concise verdict and the CTO a remediation roadmap |
| Sits apart from legal and financial DD | Flags questions for legal review and feeds relevant costs into the model |
| Arrives after three to six weeks | Can arrive early enough to inform the deal, including before a term sheet |
The comparison is about more than speed and coverage, as a one-day report is useful only if its evidence and conclusions are sound, and a sample-based review can miss relevant code outside the sample.
Let’s not forget that AI adds another reason to test claims against evidence, as code generation can make a product look more mature than the underlying engineering process.
So, to make sure your report is useful, do a simple test and ask yourself: does the report change what you do next in the deal?
If the partner must interpret the findings and the CTO must prioritize every fix, too much work remains.
When the report lands matters as much as what's in it
There’s one more aspect that needs factoring in: the timing of the report.
A tech due diligence report delivered after commercial terms are settled has less influence on price. Before a term sheet, it can change the negotiation.
It’s like this: if a Series A company's architecture needs substantial work before it can support projected enterprise demand, the fund can revisit financial assumptions and valuation before agreeing terms.
This is why some European funds move tech due diligence for investors to the pre-term-sheet stage.
Take Newion, a venture capital company, as an example. It uses Scaleflow's X-Ray before term sheets to move faster and invest with greater conviction. The value of earlier assessment is especially relevant for AI companies, where a demo may not reveal much about IP and costs, or the overall dependence on third-party models.
“We put down high-value term sheets with more confidence and use technical DD not only as confirmation, but to pay up for the quality now that we know what's really under the hood.” - Mathijs de Wit, Managing Partner, Newion.
How X-Ray reports it
Scaleflow's X-Ray delivers an investor summary and a full technical report within one business day. The target provides read-only repository access and takes about 30 minutes. X-Ray runs 250+ automated checks, with every finding verified by operators.
The deal team gets an IC-ready verdict, and the CTO gets detailed findings and a remediation roadmap. Mind you, traditional technical due diligence often takes three to six weeks, which is why X-Ray is built to give investors an earlier answer without relying solely on management interviews or a sample of the codebase.
Deals that need more interview-led investigation can use confirmatory due diligence, which takes one to two weeks.
Feel free to review example X-Ray reports to see the format and level of detail, and get a better sense of the final result.
Have a deal approaching the term sheet? Talk to Scaleflow about X-Ray and get technical evidence to support the investment decision.
FAQs about technical due diligence reports
How long does a technical due diligence report take?
Traditional technical due diligence often takes three to six weeks. Scaleflow's X-Ray delivers both an investor summary and the full technical report within one business day. Timing depends on the scope and whether additional interviews or confirmatory investigations are required.
How long should a technical due diligence report be?
There’s no ideal page count. A useful report gives the investment committee a clear verdict, explains the evidence behind material findings, and estimates remediation costs where possible. The full report should give the CTO enough detail to act. Bear in mind that 200 pages are of little use if the deal team can’t identify the important risks.
Does the founder or CTO see the report?
The latter. In Scaleflow's X-Ray process, the deal team receives an IC-ready summary, while the target company's CTO receives the full technical report and remediation roadmap. One supports the investment decision, and the other helps the company understand the findings, prioritize fixes, and plan the required engineering work.
Can technical due diligence be done before the term sheet?
Yes. Running technical due diligence before a term sheet lets investors test assumptions behind the investment thesis before agreeing commercial terms. X-Ray uses read-only repository access and requires about 30 minutes of the target company's time. The findings can inform pricing and deal conditions, and the decision to proceed.
What's the difference between a technical due diligence checklist and a report?
A checklist defines the questions an assessor should investigate. A report presents the findings, supporting evidence, risk ratings, and conclusions. A useful report also gives the investment committee a verdict and the CTO a prioritized remediation plan. The checklist article covers the questions behind the assessment.
Does a tech DD report cover AI?
It should when AI is part of the product or investment thesis. The assessment may examine whether the company owns defensible IP or wraps third-party models, how it evaluates model performance, its governance controls, and build-versus-buy decisions. It should also consider inference costs and how the cost structure may change as usage grows.
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