Due Diligence (PE Edition)
The ideal due diligence needs to take into account 3 models: the business model, the org model and the data model. The first two - evaluation of cash flows and margin, executives and team - get plenty of scrutiny in the purchase process. But the third - looking under the hood at code and data - often gets left behind or partially ignored. This is why it’s remarkable to me why so many PE firms end up believing that the way to growth is to pour more sales and marketing dollars alone, and not address underlying architectural issues with the same alacrity. As an operator, I’m expecting a few things as the outcome of a DD model: one, a clear business plan on how the company will drive growth; two, an understanding of the risks; and three, an incentive plan for the operating team that aligns the business plan to the expected risk profile. Ignoring the data model as part of a tech due diligence adds to the risk profile, distracts the team from real value creation and delays the ret...