Most investors agree that technical due diligence is important.
Yet in many deals, it still happens after the term sheet is signed, when momentum is high, timelines are tight, and walking away suddenly feels expensive.
At Dextralabs, we see this play out repeatedly. By the time serious technical issues surface, leverage has shifted, negotiations become awkward, and what should have been a confident decision turns into damage control.
This article explains why starting technical due diligence before the term sheet isn’t just safer, it’s smarter.
The Term Sheet Is a Point of Commitment, Not Curiosity
Once a term sheet is signed, several things change immediately:
- Emotional commitment increases
- Public and internal expectations are set
- Walking away becomes reputationally costly
- Negotiating power quietly shifts
At that stage, technical diligence often becomes a formality, focused on validating assumptions rather than questioning them.
But technology doesn’t respect deal timelines. If there are cracks in the foundation, they exist whether you look early or late. The difference is how much control you have when you find them.
What Gets Missed When Tech DD Starts Too Late
Late-stage technical diligence tends to uncover issues that are hard to act on:
1. Architecture That Doesn’t Scale With the Thesis
A product may support today’s revenue but fall apart under the growth assumptions baked into the valuation.
We often see:
- Systems that can’t handle increased load
- Tight coupling that slows new feature development
- Legacy choices that limit expansion or integration
After the term sheet, these findings rarely stop a deal, but they often lead to regret.
2. Security Gaps That Shift Risk, Not Just Cost
Security issues discovered late don’t just increase remediation cost. They introduce:
- Deal delays
- Legal exposure
- Changes to reps, warranties, and insurance
Earlier visibility allows investors to decide whether the risk fits the opportunity, rather than scrambling to contain it.
3. Product Roadmaps Built on Optimism, Not Reality
Roadmaps often look great in pitch decks. Early technical diligence pressure-tests them.
When diligence starts late, it’s common to discover:
- Features that require major re-architecture
- Timelines that ignore technical constraints
- Customer pain points masked by growth metrics
By then, valuations are already anchored.
The Real Cost of “We’ll Fix It Post-Close”
One of the most common rationalizations we hear is:
“We’ll clean this up after the deal closes.”
Sometimes that works. Often, it doesn’t.
Post-close remediation competes with:
- Growth initiatives
- Integration efforts
- Talent retention challenges
When technical debt is larger than expected, execution slows, forecasts slip, and the investment thesis gets tested early.
Starting diligence before the term sheet turns these unknowns into known trade-offs.
What Early Technical Due Diligence Actually Enables
Running technical diligence before the term sheet doesn’t mean slowing deals down. It means making better ones.
Better Pricing Decisions
When technical risks are understood early:
- Valuations reflect reality
- Remediation costs are modeled upfront
- Surprises don’t derail negotiations later
Stronger Negotiating Position
Early insights give investors options:
- Adjust price
- Structure protections
- Walk away with confidence
Leverage is highest before commitments are made.
Clearer Post-Investment Plans
Early diligence helps shape:
- CTO priorities
- Remediation roadmaps
- Governance expectations
- Integration strategy in M&A deals
Instead of reacting post-close, teams execute with intent.
What Early Tech DD Looks Like in Practice
At Dextralabs, early-stage technical diligence is often lighter and faster, but highly focused.
We concentrate on:
- Architecture scalability and key bottlenecks
- Security posture and exposure
- Product feasibility against the business plan
- Team dependencies and execution risk
This isn’t about perfection. It’s about early signal detection.
A Better Question for Investors to Ask
Instead of asking:
“Is it too early to run tech due diligence?”
A better question is:
“What would we want to know before committing to this valuation?”
Technology answers many of those questions, if you let it.
Final Thoughts
Technical due diligence isn’t a box to check after excitement peaks.
It’s a decision-making tool, and like all good tools, it works best when used early.
Starting before the term sheet:
- Preserves leverage
- Improves valuation accuracy
- Reduces post-close surprises
- Strengthens long-term outcomes
In today’s market, where technology is the business, delaying technical insight is one of the most expensive shortcuts an investor can take.
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