Before You Can Improve It, You Have to Know What It Is

Ask ten people what good due diligence means and you get ten answers. 

Some say rigor. Some say speed. Some say thoroughness. Some will tell you it is about catching the thing nobody else caught. Some will tell you it is about covering the base rates so nothing surprises the Investment Committee (IC). One person I talked to last month said, with a straight face, that good due diligence is "when the partner feels comfortable writing the check." 

All of these people work on the same side of the table. They have been in rooms together. They have written checks together. They have also, without realizing it, been having a decade-long argument about style because nobody ever stopped to agree on the work. 

That is the thing I want to explore for the next eight weeks. 

 

Why PE Diligence Arguments Are Really About Style 

Most arguments about commercial diligence are about process. 

One team prefers 80-slide decks. Another prefers 20-page memos. One partner wants everything bulleted. Another wants everything in narrative. One firm runs a six-week timeline. Another runs three. They all think they are arguing about quality. They are actually arguing about taste. 

I am not immune to this. I spent a good chunk of last year watching myself do it. I would look at a piece of diligence output and think, "this is good" or "this is thin," and if anyone had asked me why, I would have given them a style answer. Not enough evidence. Too many adjectives. Missing the risk on page four. Those are real complaints. They are not the complaint underneath. 

The complaint underneath is: I cannot tell what this is supposed to hold up against. 

 

The Real Cost of an Undefined Diligence Standard 

Here is where it starts to sting. 

When the craft has no agreed definition of what the work produces, every improvement becomes a style preference. You cannot tell load-bearing work from decoration. You cannot tell which habits are doing real work and which ones are just there because someone senior liked them ten years ago. You cannot even tell, when a piece of PE diligence goes sideways, whether the problem was the analysis or the communication or the assumptions or the process.

The cost of that shows up in two places: 

First, in debate cycles nobody wants. Partners argue about templates. Teams rebuild the same deliverable three different ways. Reviewers push back on different things on different days because their internal yardstick keeps moving. All of this feels like craftsmanship. It is mostly just the absence of a shared target. 

Second, it shows up when the Investment Committee asks a hard question and the answer sounds different every time. Because the team never agreed on what they were defending. When you do not know what the work is supposed to produce, you cannot defend it under pressure. You can only describe what you did. 

That is the exposure. Not a bad process. A missing one. 

 

A First Principles Framework for Commercial Due Diligence 

So let me walk you through the four questions I use when I hit this kind of ground. You will see these show up across the next eight weeks. I will name them now and then retire them as scaffolding after this piece. 

Question 1: What is due diligence at its core? 

Strip away rigor and thoroughness and coverage. Strip away the 80-slide deck and the six-week timeline and the memo template your firm has been using since 2018. Strip away everything that could have been different in a different era. What is left? 

For commercial diligence, I think what is left is one thing: a judgment that holds up. A call on whether the deal is what it appears to be. That is the core. Everything else in the work either supports that judgment or decorates around it. 

Question 2: What does it take to hold that up? 

Three things: 

A question worth asking. If you did not start with a real question, you are not doing real diligence. 

Evidence someone else can walk back through. Not the analyst's summary of the evidence. The actual chain, source to claim, that a person who was not in the room can follow. 

A reviewer whose name is on it. A person who read it, took a position, and will stand behind it if the PE deal goes sideways.

Take any one of those three out and the whole thing collapses. A great question with weak evidence is a hot take. Great evidence without a reviewer is a research dump. A reviewer who signed off without walking the evidence is a rubber stamp. All three have to be there. 

Question 3: Where did the current way come from? 

The convention of 80-slide decks and six-week timelines came from a time when advisors had to prove the work by the weight of the deliverable. Eighty slides meant seriousness. Six weeks meant rigor. You were paying for heft because heft was the only legible signal of effort. 

That constraint has been weakening for years. Clients can see the work differently now. They can cross-check it differently. They can interrogate it in ways they could not before. The need for heft as proof-of-effort is mostly gone. 

The habits built on top of that need have not gone anywhere. They are still the default. Every new hire learns them. Every template reinforces them. Every IC presentation gets measured against them. 

Question 4: If the weight is gone, what is the work now? 

Producing a judgment that survives being interrogated by someone who was not in the room. 

That is it. That is the whole work. Everything else in the deliverable is either in service of that judgment or it is weight-for-weight's-sake, which used to be the signal and is not anymore. 

Notice what this reframes: 

The six-week timeline is not the work. 

The 80 slides are not the work. 

The memo format is not the work. 

The work is a judgment and three things supporting it. Everything else is scaffolding. Useful scaffolding, sometimes. But scaffolding is replaceable. The core is not. 

 

One Exercise Before Your Next Diligence Engagement 

Before your next due diligence engagement kicks off, spend ten minutes on one exercise. Blank page. Finish this sentence in your own words: 

"The diligence we deliver produces ___."

You will not land it on the first try. Almost nobody does. The first answer is usually about activities. The second is usually about artifacts. The third, if you keep going, starts to touch the core. 

The sentence you land on will shape the next year of your practice, because it will change which arguments you take seriously and which ones you recognize as arguments about taste. 

Simplicity is genius. The kind you earn by stripping away everything that is not load-bearing. That is what first principles does. It shows you what was load-bearing all along and what was just habit. 

—Regis 

 

About the Author

Regis Hadiaris is Managing Partner, AI and Product Innovation at The Wisory. He leads IntelliQ, The Wisory's proprietary platform designed to enhance the quality, speed, and precision of commercial due diligence and investment decisions.