Investment & Exit Readiness Pt 2: Navigating Turbulence

Hutton Henry

Read • 4 min

Pre-Seed
Seed
Series A
Series B

Part 1: Taking Flight
Part 2: Navigating Turbulence
Part 3: Perfect Landing

The next chapter in this blog series includes some lessons from the trenches—real-world stories and actionable insights to help you smooth the ride.

In the prior article, we took off by focusing on you; you have a good foundation for a long run.

Now we’re cruising at altitude—a phase that should feel steady but always gets turbulent! This is where your business and technology face intense scrutiny, especially during due diligence. Investors are not just looking at what you’ve built but how scalable, secure, and resilient it is under pressure.

Let me share some lessons from the trenches—real-world stories and actionable insights to help you smooth the ride.

The Turbulence of Technology Due Diligence🔗

Technology is at the heart of most startups, serving as both a differentiator and a magnet for investor scrutiny.

A solid product might get you in the room, but due diligence is where the real questions begin. Investors want assurances that your tech can scale, remain secure, and deliver ROI.

Here are 10 common challenges uncovered during due diligence—and how to navigate them:

Unclear ROI

The Problem: This is the number one issue regardless of the firm’s maturity. Investors can’t see how your tech investments translate into financial returns.

The Fix: Align your product roadmap with financial projections, showing how tech investments drive growth and profitability.Ensure your presentation and financial model stack up!

Lack of Documentation

The Problem: Key workflows and systems are undocumented, creating opacity during due diligence.

The Fix: Document everything—technical specs, system architecture, processes, and metrics. This isn’t just for investors; it’s for the long-term health of your business.

People Problems

The Problem: Misaligned teams, unclear roles, or leadership bottlenecks can derail execution.

The Fix: Don’t let an outsider (a) identify this and (b) fix this.Invest in team alignment, leadership development, and clear communication to foster a high-functioning team.If you have known problems, sort it.

Overengineering

The Problem: Building overly complex products with unnecessary features increases costs and reduces flexibility.

The Fix: Discipline in your decision-making.Don’t build everything and talk to people.

Single Point of Failures

The Problem: Early-stage businesses often neglect resilience and put revenue or features first. This approach makes sense as they need to be attractive to investors.

The Fix: Be aware of these areas of risks before you meet investors; rank the risk, present the costs to remediate etc.

Security Risks

The Problem: Poor cybersecurity or non-compliance with regulations like GDPR can send investors running.

The Fix: Obviously, A proactive approach to cybersecurity, including regular audits, secure coding practices, and compliance with relevant regulations. But there’s more – make one person responsible for cyber security and ensure it is discussed weekly at the very minimum.

Technical Debt

The Problem: Short-term coding shortcuts lead to long-term maintenance headaches.

The Fix: First you must understand the % of time your team spends on tech debt. Create a strategy for identifying and managing technical debt. Acknowledge its existence and show investors how you plan to address it over time.

Unclear Metrics

The Problem: Startups often rely on vanity metrics (e.g., total downloads) instead of actionable KPIs.

The Fix: Focus on meaningful metrics like customer acquisition cost (CAC), lifetime value (LTV), and churn rate. These demonstrate your understanding of your business dynamics.

Inadequate Integration

The Problem: Your tech stack is disjointed, creating inefficiencies and scalability issues.

The Fix: Streamline your tech stack, focusing on integration and interoperability. This reduces friction and improves scalability.

Weak Vendor Management

The Problem: Relying on external vendors without clear contracts or contingency plans introduces risk.

The Fix: Establish strong vendor management practices with defined contracts and backup solutions to reduce dependency risks.

Story: A Startup's Mid-Cruise Turbulence🔗

Let me share a story about turbulence in action. A well-established SaaS company I worked with had a stellar product and impressive metrics. On paper, everything looked great. Investors were excited. But during due diligence, cracks began to show.

Their platform wasn’t scalable. The tech team had taken shortcuts to hit deadlines, accumulating significant technical debt. Worse, they had no documentation to explain their systems, and there were parts of the code that the team hadn’t dug into. When we started asking tough questions, the company struggled to respond in a way to convince us it was well run.

We worked with them to simplify their tech stack, document processes, and create a roadmap for addressing technical debt. It wasn’t an overnight fix, but it restored investor confidence. They secured the funding they needed—but not without a few sleepless nights.

Final Thoughts🔗

Turbulence during the cruising phase is inevitable, but it’s also an opportunity to demonstrate resilience and preparedness. You can turn turbulence into momentum by addressing these common challenges and proactively managing your business and tech.

In the final part of this series, we’ll prepare for landing—integrating your team, product, and processes for a successful exit or funding round.

Read part 3 here.