{"id":72,"date":"2026-11-01T23:09:41","date_gmt":"2026-11-01T17:39:41","guid":{"rendered":"https:\/\/eidoran.com\/insights\/?p=72"},"modified":"2026-11-01T23:09:41","modified_gmt":"2026-11-01T17:39:41","slug":"technical-debt-due-diligence-pricing","status":"publish","type":"post","link":"https:\/\/eidoran.com\/insights\/technical-debt-due-diligence-pricing\/","title":{"rendered":"Technical Debt: How Investors Should Price It Before They Close"},"content":{"rendered":"\n<div class=\"wp-block-group has-cream-background-color has-background\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n\n<h2 class=\"wp-block-heading\">The short version<\/h2>\n\n\n<ul class=\"wp-block-list\">\n<li>Technical debt is the cost of past shortcuts in software. It is not one number, and it is not the same as code quality.<\/li>\n\n<li>Treat it like financial debt: principal (the cost to fix), interest (what it costs every quarter you do not) and a due date (the event that forces the fix).<\/li>\n\n<li>Size it with evidence: incident history, delivery speed, dependency age, cloud cost against usage, and what engineers say when asked in private.<\/li>\n\n<li>Price it with one of four tools: a lower price, a holdback tied to milestones, a funded plan in the first hundred days, or a condition before closing.<\/li>\n\n<li>Debt that sits away from the revenue path matters less than a small amount on the critical path.<\/li>\n<\/ul>\n\n<\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading\">Why a score is the wrong answer<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Many reviews end with a rating for the codebase, often out of ten. A deal team cannot price a rating.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">What a deal team can price is a cost: how much will it take to fix, how much does it cost to leave alone, and what happens if something forces the issue. Those are the same questions you would ask about any other liability on the balance sheet.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Three questions that turn debt into a number<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">Where does it sit?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Debt in the part of the system that earns revenue or holds sensitive data matters far more than debt in an internal tool. Start by mapping the debt to the business: which products, which customers, which processes depend on the affected parts.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">What is the interest?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Interest is what the debt costs you every period you carry it. Look for:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Engineering time spent on workarounds, manual fixes and repeated incidents.<\/li>\n\n<li>Features that take longer than they should because the code resists change.<\/li>\n\n<li>Extra cloud spend because the design is inefficient.<\/li>\n\n<li>Customer impact: outages, slow pages, lost deals.<\/li>\n\n<li>People: staff who leave because they do not want to work in the old code.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Ask the team to estimate the share of time lost. The number is rough, but the answer and how quickly they give it are both informative.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">What is the principal, and when is it due?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Principal is the cost to remove the debt. A due date is the event that forces it: a growth target the system cannot carry, a compliance date, the end of support for a core component, a planned acquisition that needs integration, or a key person leaving.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Debt with no due date can wait. Debt with a due date inside your holding period must be in the plan.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Kinds of debt, and why the kind matters<\/h2>\n\n\n\n<figure class=\"wp-block-table\"><table><thead><tr><th>Kind<\/th><th>Example<\/th><th>Usually costs<\/th><\/tr><\/thead><tbody><tr><td>Architecture<\/td><td>A design that cannot scale past a certain load<\/td><td>The most to fix, hardest to see<\/td><\/tr><tr><td>Code<\/td><td>Tangled modules, no tests<\/td><td>Slower delivery, more bugs<\/td><\/tr><tr><td>Infrastructure<\/td><td>Unsupported servers, manual deployment<\/td><td>Outages and security exposure<\/td><\/tr><tr><td>Data<\/td><td>Inconsistent records, no clear ownership<\/td><td>Wrong decisions, compliance risk<\/td><\/tr><tr><td>Knowledge<\/td><td>Nothing written down, one person who knows<\/td><td>Delay and risk when people leave<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">Some debt is deliberate, taken to hit a date, and is often well understood. Accidental debt, which the team does not know it has, is more dangerous. Knowledge debt is the same problem as <a href=\"https:\/\/eidoran.com\/insights\/key-person-risk-startup-due-diligence\/\">key person risk<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">How to size it from the outside<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">You rarely get a full audit before signing. A focused review can still produce a defensible range from these sources:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Incident and outage history over the last year, and how each was fixed.<\/li>\n\n<li>Release frequency and its trend. A team shipping less each year is paying interest.<\/li>\n\n<li>Age of the oldest dependencies and components out of support.<\/li>\n\n<li>The backlog of known bugs and how old the oldest ones are.<\/li>\n\n<li>Cloud cost against usage over time.<\/li>\n\n<li>Private conversations with engineers, away from management. Ask what they would fix first and what they are afraid to touch.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Combine these into a range, not a point. The <a href=\"https:\/\/eidoran.com\/insights\/technology-due-diligence-checklist\/\">technology due diligence checklist<\/a> lists the questions that gather this evidence. A range of costs and a timeline is a sound basis for a negotiation.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">An illustrative example<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The numbers below are made up to show the method. They are not from a real deal.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Consider a software company where reviewers find two areas of debt. The first is an outdated payment module on the critical path. Suppose it would cost \u20b92 crore to replace (the principal), cause failed transactions that cost roughly \u20b915 lakh a quarter in support time and lost orders (the interest), and cannot carry the volume in the growth plan beyond the next year (the due date). The second is an old reporting tool used by internal staff, ugly but stable, with a replacement cost of \u20b940 lakh and almost no interest.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The payment module has principal, interest and a due date, so it gets funded in the first hundred days, and \u20b91 crore of the price is held back until it is replaced. The reporting tool is left alone and logged.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The same total debt, split this way, is a manageable plan instead of a vague worry.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Four ways to price it<\/h2>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Price adjustment. Reduce the price by the cost to fix the debt that must be fixed. Works when the amount is clear and agreed.<\/li>\n\n<li>Holdback or escrow. Hold part of the price until named fixes are delivered. Works when the cost is uncertain and the sellers will stay involved.<\/li>\n\n<li>Funded plan. Accept the debt, but build the fix into the value creation plan with a budget and an owner. Works when the buyer will run the company.<\/li>\n\n<li>Condition before closing. Require the fix, or a proof of progress, before the deal completes. Works for items that threaten the core of the deal.<\/li>\n<\/ol>\n\n\n\n<p class=\"wp-block-paragraph\">Often a deal uses two or three of these together. After closing, re-rank the debt each quarter as part of <a href=\"https:\/\/eidoran.com\/insights\/technology-governance-vs-technology-due-diligence\/\">technology governance<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">A two by two to sort what you find<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Plot each item by how much it matters to revenue or risk, and how much it costs to fix.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>High impact, low cost: fix now, often before closing.<\/li>\n\n<li>High impact, high cost: plan, fund and price.<\/li>\n\n<li>Low impact, low cost: fix when convenient.<\/li>\n\n<li>Low impact, high cost: leave alone and monitor.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1200\" height=\"624\" src=\"https:\/\/eidoran.com\/insights\/wp-content\/uploads\/2026\/11\/technical-debt-impact-cost-matrix.webp\" alt=\"Two by two matrix sorting technical debt by impact and cost to fix: fix before close, fund and price, fix when convenient, leave and monitor\" class=\"wp-image-64\" srcset=\"https:\/\/eidoran.com\/insights\/wp-content\/uploads\/2026\/11\/technical-debt-impact-cost-matrix.webp 1200w, https:\/\/eidoran.com\/insights\/wp-content\/uploads\/2026\/11\/technical-debt-impact-cost-matrix-300x156.webp 300w, https:\/\/eidoran.com\/insights\/wp-content\/uploads\/2026\/11\/technical-debt-impact-cost-matrix-1024x532.webp 1024w, https:\/\/eidoran.com\/insights\/wp-content\/uploads\/2026\/11\/technical-debt-impact-cost-matrix-768x399.webp 768w\" sizes=\"auto, (max-width: 1200px) 100vw, 1200px\" \/><figcaption class=\"wp-element-caption\">Sort what you find by impact and cost.<\/figcaption><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">Eidoran advises investors and boards on this through its <a href=\"https:\/\/eidoran.com\/#practice\">technology due diligence and governance practice<\/a>. Related reading: <a href=\"https:\/\/eidoran.com\/insights\/technology-due-diligence-checklist\/\">technology due diligence checklist<\/a>, <a href=\"https:\/\/eidoran.com\/insights\/key-person-risk-startup-due-diligence\/\">key person risk in startups<\/a>, <a href=\"https:\/\/eidoran.com\/insights\/technology-governance-vs-technology-due-diligence\/\">technology governance vs technology due diligence<\/a>, <a href=\"https:\/\/eidoran.com\/insights\/series-a-technical-due-diligence\/\">Series A technical due diligence<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Frequently asked questions<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">What is technical debt in due diligence?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">It is the accumulated cost of shortcuts and ageing decisions in a company&#8217;s software and systems. In diligence it is sized by the cost to fix, the cost of carrying it each period and the events that could force the fix.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">How much technical debt is normal?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">There is no standard percentage. Every working product has some. What matters is whether the team knows it, ranks it and is paying it down in a planned way.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Can technical debt be priced into a deal?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Yes. Investors can lower the price, hold back part of it, fund a fix in the early plan or require work before closing. The choice depends on how certain the cost is.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Is technical debt always bad?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">No. Taking on debt to reach a market on time can be the right call. It becomes a problem when it is hidden, grows without a plan or sits on the critical path.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Who should assess technical debt?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">An independent reviewer with experience running engineering at a similar scale, who can read the evidence, talk to the team and turn the findings into a cost and a timeline.<\/p>\n\n\n\n<div class=\"wp-block-group has-paper-color has-ink-background-color has-text-color has-background\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n\n<h2 class=\"wp-block-heading\">Evaluating a deal?<\/h2>\n\n\n<p class=\"wp-block-paragraph\">Request a confidential briefing on independent technology due diligence.<\/p>\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link has-text-color has-background wp-element-button\" href=\"https:\/\/eidoran.com\/?utm_source=insights&amp;utm_medium=blog&amp;utm_campaign=technical-debt-due-diligence-pricing#contact\" style=\"background-color:#c2a05e;color:#0e1116;border-radius:2px\">Request a Confidential Briefing<\/a><\/div>\n<\/div>\n\n<\/div><\/div>\n\n\n\n<p class=\"has-small-font-size wp-block-paragraph\"><em>This material is prepared for the general information of boards, investors and advisors, and does not constitute investment, legal or accounting advice.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Technical debt is not a score. It has principal, interest and a due date. Here is how investors can size it, price it and fund the fix before closing.<\/p>\n","protected":false},"author":1,"featured_media":65,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[5],"tags":[25,29,9,21,28],"class_list":["post-72","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-technology-due-diligence","tag-ma","tag-private-equity","tag-technical-debt","tag-technology-due-diligence","tag-valuation"],"_links":{"self":[{"href":"https:\/\/eidoran.com\/insights\/wp-json\/wp\/v2\/posts\/72","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/eidoran.com\/insights\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/eidoran.com\/insights\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/eidoran.com\/insights\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/eidoran.com\/insights\/wp-json\/wp\/v2\/comments?post=72"}],"version-history":[{"count":1,"href":"https:\/\/eidoran.com\/insights\/wp-json\/wp\/v2\/posts\/72\/revisions"}],"predecessor-version":[{"id":77,"href":"https:\/\/eidoran.com\/insights\/wp-json\/wp\/v2\/posts\/72\/revisions\/77"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/eidoran.com\/insights\/wp-json\/wp\/v2\/media\/65"}],"wp:attachment":[{"href":"https:\/\/eidoran.com\/insights\/wp-json\/wp\/v2\/media?parent=72"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/eidoran.com\/insights\/wp-json\/wp\/v2\/categories?post=72"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/eidoran.com\/insights\/wp-json\/wp\/v2\/tags?post=72"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}