Tech debt in fundraising due diligence: the VC question bank

The Question Bank

The seven to twelve questions to expect

Tech DD partners use a standardised question bank that varies less than founders expect. Most growth-stage DD calls cover the following questions in roughly this order. Preparing structured answers in advance reduces the DD report's adjustment recommendations by a measurable margin.

Bank composition varies by DD partner. The above is the modal set across late-2025 growth-stage software DD work observed in public-facing DD partner methodology pages and founder interviews.

How to Answer

The disposition that lands

The DD partner is not adversarial. They are paid to write a report that the investing GP relies on, and the report is more credible when the CTO is candid than when the CTO is defensive. The dispositional rule that experienced founders apply: answer every question with the actual number, the named caveat, and one sentence on what you are doing about it. Three pieces of information per answer. Anything more reads as defensiveness; anything less reads as evasion.

On the drag question specifically (question 03 in the bank), the answer should land near the McKinsey 25-42% range with an honest internal number inside it. A CTO who answers “5-8%” loses credibility immediately because the DD partner has seen no real company at that level. A CTO who answers “28% by our measurement, consistent with the McKinsey 2023 industry midpoint, with a remediation plan that targets 18% by end of next year” reads as a competent operator. The conservative honest answer is more persuasive than the flattering optimistic one.

On the question 12 capital-deployment question, have a concrete answer ready. “Where would $5M go?” is the GP's way of asking whether the investment will be used productively if granted. A CTO who cannot answer this in 60 seconds with a specific allocation has not earned the funding. The right answer names two to three specific investments with payback periods, sized to roughly match the question's dollar figure.

Pre-Emptive Disclosure

What to surface before the GP asks

The strongest move in tech DD is pre-emptive disclosure. A founder who, in the first management call, says “here is the architectural debt we carry, here is the cost-of-inaction, here is the remediation plan, here is the timeline,” is sending a credibility signal that the DD partner will weight heavily. The founder who waits for the DD partner to discover the same facts independently has lost the framing battle.

The disclosure should be specific. “We have tech debt” is not a disclosure. “We have a billing-engine monolith that handles 80% of our revenue paths and is one of the three largest constraints on our 24-month roadmap. We have scoped a 14-month strangler migration and we plan to fund it from the next round if we raise it.” is a disclosure. The second formulation signals competence; the first signals discomfort.

Pre-emptive disclosure also gives the founder control of the remediation framing. A finding that comes from the DD partner reads as a problem; the same finding raised by the founder with a plan attached reads as deal-thesis confirmation (the round funds the plan). The dollar amount the GP is being asked to invest is unchanged; the narrative around what the dollars buy is materially better.

The Term-Sheet Implications

How tech DD findings show up in terms

Most tech DD findings adjust soft terms rather than valuation. A clean DD report typically results in a tighter close timeline (shorter exclusivity window, fewer conditions precedent), a smaller management warranty package, and no adjustment to the headline pre-money. A DD report with material findings can introduce: an earnout component tied to remediation milestones, a board-seat upgrade for the GP, an information-rights tightening, and in extreme cases a valuation adjustment in the 5-15% range.

The earnout structure is the most common term-sheet expression of tech debt findings. A growth-stage GP who has identified a material architectural risk will sometimes propose that a portion of the round's economic value (typically 10-20% of the founder's share of secondary proceeds, or a board-approved milestone-linked compensation) gates on completion of the remediation work. This is unusual in primary rounds but standard in secondary structures where founders take liquidity.

A founder negotiating against an earnout proposed because of tech DD findings has two productive moves: name a faster remediation plan with a measurable interim milestone, or counter-propose a board-level engineering KPI dashboard that the GP receives quarterly without earnout structure. Both moves typically remove the earnout from the term sheet; refusing to engage with the underlying concern almost never does.

Cross-Reference

The VC pitch sits inside the stakeholder stack

VC fundraising DD is distinct from M&A acquirer DD because the time horizon and remedy structure differ. See the acquirer pitch page for the M&A version. The Series A-C framing covers the typical company stage where VC tech DD becomes substantive. The EV at exit page covers the long-tail strategic frame the founder-CEO uses to motivate the same tech debt remediation internally before fundraising kicks off.

For the management-side preparation, the CEO pitch and board pitch pages cover how to get internal alignment before the GP meeting. Engineering-deep treatments of the technical DD scoring rubrics live on the sister site technicaldebtcost.com, including the per-language and per-framework patterns DD partners specifically look for.

Field Notes

Frequently asked questions

Adjacent Reading