As a non-technical SaaS founder, communicating the concept of technical debt to your investors can be challenging but essential. Reports suggest that investors in 2024 are more discerning, favoring companies that can demonstrate efficient growth and robust operational practices, including effective technical debt management​ (European SaaS Benchmark report)​.

With this guide, we help non-technical founders to explain legacy and tech debt clearly, as it is very important when communicating with investors. Though technical in nature, this concept can be simplified to help investors grasp its implications and the necessity of addressing it proactively.

What is Technical Debt?

Technical debt is a metaphor in software development that compares the short-term benefits of quick, suboptimal coding to the long-term costs of refactoring or rewriting that code later. It arises when teams take shortcuts to speed up delivery, which later require additional work to fix, much like financial debt incurs interest over time.

We’ve written plenty of articles to fully understand technical debt:

Why technical debt matters to investors

Impact on Growth and Scalability

Technical debt can slow down development and make scaling more challenging. High technical debt can lead to longer development cycles, making it harder to add new features and fix bugs. This can hinder a company's ability to respond to market demands swiftly.

Financial Implications

Just like financial debt, technical debt incurs interest. Over time, the cost of maintaining and improving a codebase with significant technical debt increases, which can affect the company's profitability and burn rate. For instance, the European SaaS Benchmark 2023 highlights the importance of efficient growth and managing operational costs to maintain healthy burn multiples and ARR growth rates​​.

Valuation and Investor Confidence

Investors are keen on companies with robust and maintainable codebases. A high level of technical debt might signal potential risks, affecting the company's valuation and investor confidence. In 2024, investors are practicing more valuation discipline, and companies with clear strategies to manage technical debt are likely to be more attractive​ (Sapphire Ventures)​​ (SaasRise)​.

How to communicate your technical debt to investors

Avoid technical lingo

It’s always smart to use a metaphor. Imagine your product as a house. We built it on a shaky foundation in our rush to move in quickly (time to market). This haste was necessary to capitalize on immediate opportunities, but now, we need to invest in proper renovations to extend or improve the house. This renovation is our technical debt.

See the upside

Technical debt often has a negative connotation. It’s important to show that the debt is a positive thing. Hence the name: “debt”. You borrow time to seize other, more important opportunities at that time. Now, the time has come to pay back that loan.

Current state of technical debt

Explain the current level of technical debt, its causes, and its impact on your product development and operational efficiency. Use tangible metrics, such as the percentage of development time spent on maintaining versus building new features.

Describe the impact

Every decision has trade-offs. Continuing your current approach means you might face issues like slower delivery times, more frequent bugs, and potential quality problems with new releases. These issues can affect your customer satisfaction and, ultimately, your market position. Addressing your technical debt ensures that your product remains robust and scalable.

For example, you can decide to continue as you are used to, but in that case, you’ll face quality issues when launching new software, you won’t ship as fast as you want, and customers will be impacted with more frequent problems.

Propose a proactive strategy

Aligning on a high-level strategy is crucial. One effective approach is to maintain a feature-to-technical-maintenance ratio. Allocating a certain percentage of your development bandwidth to address technical debt can help keep it under control. Additionally, implementing cooldown weeks—periods dedicated to maintenance and improvements after intensive feature sprints—can prevent debt from accumulating (iterative buffer planning).

Outline your plan to manage and reduce technical debt. This could include refactoring critical parts of the codebase, implementing better coding practices, or allocating specific sprints for debt repayment. Highlighting proactive management can reassure investors of your commitment to long-term stability. 

Investment in technical excellence

Emphasize how investing in reducing technical debt aligns with the overall business strategy. For example, improving code quality can lead to faster development times, reduced operational costs, and enhanced product reliability, ultimately supporting efficient growth. 

Investing in technical excellence also means investing in your people. If you pay peanuts, you get monkeys. A senior developer in Europe with plenty of experience working in legacy codebases will easily cost you around 7-10k per month. 

Have a detailed technical roadmap

Luckily, technical debt is a problem that can be solved with the correct time investment and prioritization. Present a data-driven plan of priorities, time, and budget. Describe how the technical debt is assessed and prioritized, but don’t go into every detail. The investor will want to assess whether the team is ready for the challenge and whether a vision and plan exist.

There’s a lot to share about roadmaps

Technical due diligence

If you are planning on raising money but are unsure of your product's technical state, consider auditing your product, technical team, and software. With our technical due diligence service, our senior engineers and experienced CTOs will technically de-risk your next funding round in only two weeks. Feel free to reach out to our CEO to discuss the possibilities

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By effectively communicating the nature, impact, and management strategies of technical debt, you can align your technical challenges with business goals, providing investors with a clear understanding of how addressing technical debt will support sustainable growth and enhance the company's value.