For decades, Private Equity due diligence was a financial engineering exercise. If the Quality of Earnings (QoE) report held up and the legal binders were thick enough, the deal closed. That era is over. In 2025, operational maturity is the primary driver of deal certainty—and the primary cause of deal failure.
Recent data indicates that up to 50% of M&A transactions fail during due diligence. The culprit is rarely a missed decimal in the EBITDA calculation. It is the "black box" operational risks that financial statements hide: technical debt, key-person dependency, undocumented processes, and cybersecurity vulnerabilities. In fact, 79% of deal teams now list cybersecurity as a top diligence factor, with 60% of buyers willing to walk away entirely if they find unmitigated risks.
As an Operating Partner, your job is not just to prepare the Data Room; it is to perform "Reverse Diligence"—auditing your portfolio company with the same ruthless scrutiny a strategic buyer will apply 12 months from now. If you find the skeleton first, you can fix it (or disclose it on your terms). If the buyer finds it, it costs you multiple turns of EBITDA.
We have compiled a diagnostic questionnaire of 75 questions across five critical domains. These are not soft "culture" questions. They are binary, evidence-based inquiries designed to expose the operational fragility that kills exits.
Use this questionnaire to audit your portfolio companies 12-18 months prior to exit. A "No" or "I don't know" answer to any question is a potential valuation haircut.
Goal: Validate that revenue is repeatable, not just lucky.
Goal: Quantify the "Black Box" of IT and Product.
Goal: Ensure the business survives the founder's exit.
Goal: Identify the "Deal Killers."
Goal: Bridge the gap between Operations and Finance.
Completing this questionnaire is only the first step. The value lies in the scoring. We recommend a simple binary scoring system: 1 point for "Yes" (with evidence), 0 points for "No" or "Partial."
If your portfolio company scores in the Yellow Zone, you need a "Get Well" plan. Start with Technical Debt and Cybersecurity—these take the longest to fix and scare buyers the most. Next, attack Revenue Quality; move customers to standard contracts and clean up the pipeline. Finally, document the SOPs. A buyer pays for a machine, not a magician. If the processes live in the founder's head, you are selling a magician.
Operational Due Diligence is no longer a checkbox. It is the defensive moat that protects your multiple. Ask these questions now, or prepare to answer them when the price is being renegotiated.
