Draft written by Claude from your background — replace with your own view before publishing.
By the time a commercial due diligence starts, the deal has a champion. Someone at the fund has already told the investment committee why this asset is interesting, and the model has a growth rate in it. The diligence is nominally there to test that. In practice it is there to find the one assumption that would break it.
The number that matters is almost never the market size
Every CDD produces a market sizing, and it is usually the least useful page in the report. Markets are large; that is not why deals fail. Deals fail because the target’s share of that market depends on something that is quietly changing — a channel that is consolidating, a procurement cycle that is lengthening, a customer segment that is one competitor away from switching.
The work worth doing is finding which single variable the thesis is levered to, then testing that variable hard with primary research rather than testing everything shallowly.
Primary research is where the answer lives
Desk research tells you what the market says about itself. Customer conversations tell you what people actually do. The gap between those two is where value is created or destroyed, and it is invisible in any database.
Twenty honest customer calls will teach you more about retention risk than any cohort analysis the seller provides, because the seller’s cohorts are constructed by someone with an interest in how they look.
Say the uncomfortable thing early
The failure mode in diligence is not missing the risk. It is finding it in week four and softening it because the deal team is already emotionally committed and the timetable is fixed.
The value of an adviser is entirely in whether they will say the thing that costs the deal. A client who has been told clearly and decided to proceed anyway has made a decision. One who was told gently has made a mistake.
What this means on the buy side
If you are the investor rather than the adviser, the useful discipline is to write down before diligence starts what finding would make you walk. Committing to it in advance is the only reliable protection against the pressure of a live process.
If you are working through this yourself,book a 30-minute call.