Legacy vs. technical debt: what every investor needs to know

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If you’ve ever sat across from a startup founder, you’ve probably heard these words: “Our product is highly scalable,” “We’ve got a modern tech stack,” or “We deploy new features in no time.” It all sounds impressive. But behind those shiny claims, there’s often a hidden weight slowing everything down: legacy code and technical debt.

These two invisible forces can quietly drag even the brightest software company off track. The tricky part? They’re not the same thing - and unless you know how to tell them apart, you might miss the red flags that threaten your investment. For investors, this isn’t about geeking out over code. It’s about protecting your money, spotting risks early, and making sure you’re not backing a product that’s secretly bleeding time and cash.

In this article, we’ll break down what legacy and technical debt really mean, why they matter for your portfolio, and most importantly, how you can recognize the warning signs before they become expensive crises.

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What’s the difference between legacy and technical debt?

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Legacy and technical debt are often lumped together, but they’re two different beasts. Legacy code is simply old code. Sometimes that’s good—stability in software can be a strength. Other times, it’s harmful—outdated, messy, fragile code that slows every new feature. The real test of legacy code is whether it’s still maintainable and reliable. Technical debt, on the other hand, is not about age—it’s about choices. Think of it like borrowing time: you cut corners today to move faster, but you’ll pay it back later, often with interest. It’s a trade-off, sometimes intentional, sometimes accidental. Here’s a simple way to remember:

• Legacy = a condition (the state of the codebase today).
• Technical debt = a decision (trade-offs made in the past that need repayment).

For investors, this difference matters. Legacy may signal stagnation, while technical debt may signal a company growing too fast without discipline. Both have risk implications.

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Why should investors care?

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Investors usually focus on markets, revenue, and leadership. But in software-driven businesses, the health of the codebase directly affects all of those. A codebase burdened by harmful legacy slows down every product update. Deadlines slip. Costs balloon. Developers burn out. Meanwhile, technical debt left unmanaged can lead to brittle systems, security vulnerabilities, and entire rewrites when scaling demands it. That means:

• Missed revenue opportunities when features take too long.
• Higher burn rates as engineering productivity drops.
• Lower exit value if due diligence reveals poor technical health.

Put simply: ignoring legacy and technical debt is like buying a shiny building without checking whether the foundation is cracked.

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“The best way to get leadership to act isn’t by complaining, but by showing the cost. Track the hours lost to bugs, the delayed features, and the revenue at risk. Numbers speak louder than opinions.” - Aleks Terziev, CTO at Codelevate

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Good vs. bad legacy

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The word “legacy” often gets a bad rap, but not all legacy code is dangerous. A ten-year-old module might be stable, well-documented, and still doing its job perfectly. In fact, some of the most reliable systems in finance and aviation run on decades-old code. So how do you tell good legacy from bad legacy?

• Good legacy: well-structured, documented, stable, easy for new developers to understand.
• Bad legacy: undocumented, fragile, and a “black box” where changes cause chain reactions of bugs.

The real warning sign for investors is harmful legacy - code that slows everything down. If the engineering team keeps complaining about how long simple fixes take, motivation is draining, or feedback loops are getting longer, that’s legacy acting as a silent drag on the business.

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The real risks of harmful legacy

When legacy turns harmful, it becomes more than just a technical issue - it’s a cultural one. Teams working with fragile systems lose trust, take fewer risks, and stop moving fast. That’s when product velocity stalls and costs start creeping up. Some clear signs of harmful legacy:

• Only one engineer knows how a part of the system works.
• Deployments take longer than expected.
• Dependencies are outdated and can’t be upgraded easily.
• Fixing one bug breaks three other things.

As an investor, these aren’t just technical headaches—they’re risks to your return.

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Technical debt

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If legacy is about the past, technical debt is about trade-offs today. Startups often move fast and cut corners to get to market. That’s fine—sometimes even necessary—but if those debts aren’t repaid, the “interest” compounds. Examples of technical debt:

• Skipping automated tests to release faster.
• Using quick hacks instead of scalable architecture.
• Not updating documentation.

The danger isn’t in having debt - it’s in not managing it. A disciplined team repays debt with small refactors, cleanups, or roadmap time. A reckless team ignores it, and eventually, they’re forced into expensive rewrites.

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How investors can spot hidden risks

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So how do you, as an investor, spot whether a startup is drowning in legacy or technical debt?

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1. Ask the right questions

Don’t just ask about the product roadmap—ask about the “boring” stuff too:

• How much of the roadmap is dedicated to technical improvements vs features?
• How often do dependencies get updated?
• Are there upcoming refactors or major upgrades planned?
• What percentage of engineering time is spent on maintenance?

If these questions don’t have clear answers, that’s a red flag.

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2. Look for signals in culture

During due diligence interviews, listen closely. Phrases like:

• “Only X knows how that works.”
• “We can’t upgrade because everything will break.”
• “That part is too risky to touch.”

These are cultural signals of harmful legacy.

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3. Use technical due diligence tools

You don’t need to read code line by line to spot risks. Tools can help:

• SonarQube highlights complexity and code smells.
• CodeScene maps hotspots and churn against bug reports.
• Snyk checks dependencies for security risks.
• Qodana flags maintainability issues.
• Aikido Security monitors outdated dependencies.

These won’t tell the full story, but they highlight areas worth digging into.

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Preventing harmful legacy in products

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Think of a codebase like a garden. If you prune and maintain regularly, it thrives. Leave it for years, and it becomes overgrown, tangled, and hard to fix.

Healthy teams:

• Update dependencies regularly.
• Document code and knowledge.
• Mix maintenance into daily work.
• Plan larger refactors visibly on the roadmap.

Sometimes bigger interventions are needed:

• Dedicated cleanup sprints.
• Feature freezes to fix the foundation.
• Cultural resets where technical health becomes a shared priority.

As an investor, you should expect to see both small ongoing maintenance and occasional larger technical initiatives on the roadmap. If neither exists, legacy is already creeping in.

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The role of technical debt in fast-scaling startups

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When teams say, “We don’t have time for that,” they’re usually talking about technical debt. And it’s understandable—startups need to move fast. But debt is only safe when it’s managed. Smart teams scope properly:

• Release smaller features faster.
• Get feedback early instead of chasing perfection.
• Document trade-offs so debts don’t get forgotten.

Poorly managed teams pile up invisible liabilities. As an investor, you need to check whether the team is aware of their debt and has a repayment strategy.

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How teams can track and monitor risks

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Spotting and tracking legacy and technical debt requires both tools and culture.

• Tools like SonarQube and CodeClimate provide automated insights.
• Tracking DORA metrics helps measure how fast teams deploy and recover from issues.
• Regular internal reviews keep legacy in check.

The most important element, though, is visibility. Mature teams put technical health on the same level as product features. If technical work is invisible in planning, legacy and debt are already undermining the product.

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Why investors should demand visibility

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Think of it like this: you wouldn’t buy real estate without a maintenance plan. Why buy into a product without one? Investors should demand:

• A consistent percentage of engineering time allocated to maintenance.
• Visibility of major refactors or upgrades on the roadmap.
• Reporting on technical health alongside business KPIs.

This isn’t about micromanaging—it’s about risk management. Protecting your capital means making sure the foundation of the product doesn’t quietly crumble.

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Conclusion

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Legacy and technical debt may be invisible, but they’re two of the biggest risks in any software product. Legacy shows where the system stands today; technical debt is the shortcut that comes back with interest tomorrow. Both can slow growth and burn money if ignored. For investors, the win isn’t avoiding them - it’s spotting them early and backing teams that manage them well. Think of it like property: a building without upkeep looks fine until the cracks show. Healthy code means faster growth, lower risk, and stronger returns. Simple as that.

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Ready to make smarter investments and avoid hidden tech risks? Book a free strategy call with our team and let’s talk about how to safeguard your portfolio.