When a private equity fund enters a due diligence phase, the exercise goes far beyond the accounting audit, it is a complete dive into the bowels of a company, where the founder’s promise gives way to a quantified truth. The objective is not to confirm an intuition, but to measure the real solidity of the model, its capacity to absorb growth and create value without depending on the luck phenomenon. The first instinct of investors is not to look at turnover, but to study different elements of the company’s engine.
The product can be read in the support margin
Among them, the customer support margin. So a company that spends more than 25 to 30% of its revenues to maintain customer relationships is not selling a product but a service. This kpi reveals the symptom of hidden technical debt, because a robust product can be recognized by its stability, with fewer incidents, less human intervention, and a support margin greater than 30%. It indicates software maturity, and indicates whether the product is truly industrialized or still dependent on manual fixes.
Retention, mirror of real value
Other KPIs looked at closely are those linked to retention, because if growth can be bought, retention is earned. Thus a Net Revenue Retention (NRR) less than 100% reveals a structural problem, customer flight, commercial over-promise or misalignment between product and real use, when greater than 120% it indicates a company whose product is naturally established, and is expanding into existing accounts.
Funds now require reading by cohortto check whether loyalty strengthens or deteriorates over time. A good NRR sometimes hides an aging base or a one-off effect of tariff expansion.
Data: the new center of gravity of value
To better evaluate it, they audit the quality, ownership and use of data. In an environment dominated by AI, data has become the true strategic asset. Who owns them? Are they exclusive or dependent on third-party flows? Can they be used to train a proprietary model without legal risk?
A company that controls its data has a lever for continuous improvement and long-term valorization. So many points to carefully address and document to be ready on the big day.
Technical debt, or invisible fragility
The most sophisticated funds systematically achieve technical due diligence. They want to know how many lines of code are active, what software dependencies are obsolete, how many modules remain on an ancient monolith. High technical debt means increasing maintenance costs and low agility to integrate new technologies, including AI. An aging code is a machine with declining margins. Each point of technical debt eventually translates into lost valuation points.
The culture of numbers before the story
The CEO’s behavior during due diligence is as important as its results. Thus a manager capable of precisely quoting his margin rates, his acquisition costs and his churn rates inspires confidence, taking the time to build these kpi upstream is the best investment that a CEO can make to prepare for the confrontation with the fund’s analysts. This is not new but it deserves to be tirelessly repeated: investors are looking for a culture of measurement, not of discourse. Clarity, precision and responsiveness are the three traits of a company that knows how to manage its performance and not comment on it.
Can internal scalability scale up?
A fund does not seek a perfect company, but a company scalable. To evaluate it, it examines the fluidity of the cycle order-to-cashthe reliability of reporting, the centralization of customer data, the structure of fixed and variable costs. A company that relies on a founder’s intuition cannot grow to 100 million in revenue without disintegrating. The key question is always the same: will each euro of growth cost more or less to produce?
Leadership, or behavioral reading
Due diligence evaluates not just a strategy, but a temperament. Investors observe how the CEO reacts to pressure: does he respond quickly? Does he own up to his mistakes? document points of friction? Transparency becomes an asset here. Management that cooperates and provides information without resistance demonstrates a culture of rigor. Conversely, vagueness, delays and omissions are behavioral signals that funds immediately read negatively.
The AI filter: the new sectoral stress test
Since 2023, each due diligence has included a component AI. Investors want to understand whether the company is at risk of technological substitution.
To do this, three questions dominate:
- How much of the product can be replaced by an open source model?
- Can the data be used to train an internal model?
- Does the economic model survive the disappearance of “per seat” pricing?
This filter gradually eliminates so-called “pre-AI” companies: those whose value proposition is based on tasks that artificial intelligence now performs better, faster and at lower cost.
In conclusion, diligence as cultural x-ray
Successful due diligence does not reveal a perfect business, but a lucid one. The numbers can be corrected, the code can be rewritten, but a culture incapable of confronting reality is difficult to reframe. Yes, the performing asset is crucial, but the funds are looking for managers capable of learning quickly, adjusting without ego and rebuilding under constraint, otherwise they will not hesitate to replace them as soon as necessary.
