By Mario Peshev, DevriX
The most expensive mistake I see in mid-market technical diligence is not a missed vulnerability or a legacy stack that needs a rewrite. It is a deal team that hires a “technical value creation partner” and gets back a document nobody in the investment committee can act on. The report is thorough. It is also useless, because it answers questions the vendor found interesting instead of the two questions that actually gate capital: does this change the thesis, and does it change the number.
I have sat on both sides of that table. I run an embedded firm that operates inside portfolio companies, and I have watched deal partners and operating partners fund work that produced beautiful architecture diagrams and zero movement in enterprise value. So this piece is about a narrow, practical thing: what you, as the person accountable for the deal, actually need from a technical partner, and how to judge whether you are getting it before you sign a retainer.
The buyer is not purchasing technology
Start here, because everything downstream depends on it. When a PE-backed buyer engages a technical value creation partner, the buyer is not purchasing engineering capacity, a platform migration, or an AI roadmap. It is purchasing measurable enterprise-value improvement, expressed in the currency the fund reports to its LPs: revenue growth, EBITDA expansion, cash-flow reliability, faster integration, lower operating risk, and a shorter, cleaner path to exit.
Technology is the mechanism. It is never the deliverable. A partner who leads with the mechanism, tickets closed, features shipped, uptime improved, is showing you the vendor register, not the outcome. That is the single most common failure mode in this category, and it is why I keep arguing that PE value creation requires embedded partners, not advisory firms. Advice describes the mechanism. An operator is accountable for what the mechanism produces.
Bain’s annual Global Private Equity Report has spent several years documenting the shift away from multiple expansion and financial engineering toward operational improvement as the primary source of returns. If operational improvement is the job, then the technical partner exists to convert operational reality into P&L outcomes, not to admire the technology.
Write to the stakeholder, not to “the fund”
“The PE firm” is not your reader. There are at least four readers inside that firm, and each one needs a different answer from the same technical work. A partner who cannot tell them apart will address a memo to nobody.
The deal partner wants thesis, risk, and exit
The deal partner is deciding whether to commit capital or how to price it. This person does not want a description of the codebase. They want to know whether the technology supports the investment thesis or quietly undermines it, what the concentrated risks are, and whether any of it threatens the exit narrative in three to five years. If the thesis is a roll-up, the question is whether the platform can absorb acquisitions without a re-platform every time. If the thesis is margin expansion, the question is whether the tech debt caps the margin you underwrote.
The operating partner wants speed, adoption, and a repeatable playbook
The operating partner has to make it happen across a portfolio. This reader wants to know how fast a change lands, whether the team will actually adopt it, and whether the approach repeats at the next company. I have written before about the difference between consultants and operators on P&L accountability, and this is where it bites hardest. A consultant hands the operating partner a plan. An operator hands them a result and a playbook the next portco can run.
The CFO wants QoE, cash, covenants, and forecast reliability
The CFO reads everything through quality of earnings, cash position, covenant headroom, and whether the forecast holds. A technical partner talking to a CFO about “modernizing the stack” is talking past them. The same work described as “removing the manual reconciliation that makes the monthly close unreliable” lands, because it touches forecast reliability directly. When technology touches revenue recognition or the numbers that feed adjusted EBITDA and add-backs, the CFO is your audience and precision matters. Professional guidance from bodies like AICPA & CIMA on earnings quality and reporting discipline is the standard a serious CFO holds this work to.
The CTO wants those translated into diligence risk and EBITDA
The portfolio CTO or the fund’s technical advisor speaks the mechanism natively, but even here the useful conversation translates the mechanism into diligence risk and margin. The best CTOs I work with do not want to be impressed by architecture. They want to know which risks a buyer will flag at exit and which spending decisions move gross margin.
The practical test: if a technical partner sends every stakeholder the same deck, they do not understand who is deciding what. A deal partner is rarely the right reader for a description of engineering activity.
Diligence and value creation are two different mandates
Buyers routinely conflate the technical work done before close with the work done after, and the conflation costs them. They are governed by different clocks and different questions.
Pre-close: what could break the thesis or the price
Technical due diligence is a risk-and-pricing exercise on a fixed, short clock. The output is not a to-do list. It is a ranked set of findings that either confirm the thesis, adjust the price, or kill the deal. The best technical diligence I have delivered reads like the technical companion to a commercial due diligence memo, and it should share the same discipline I describe in commercial due diligence red flags in B2B businesses. It classifies each finding by whether it is a risk to avoid, a cost to reprice, or a non-issue that looked scary.
Post-close: what actually moves the number
Value creation starts after the wire clears and runs on the hold-period clock. Now the question flips from “what is broken” to “what, if we fix or build it, moves revenue, margin, or exit multiple, and in what order.” This is the mandate where an embedded partner earns their retainer, because it requires living inside the operating rhythm of the company, not visiting it. It connects to the same commercial discipline as a 100-day go-to-market plan for a newly acquired business: sequenced, owned, and measured against a baseline.
A partner who does diligence and then disappears leaves you with a risk list and no one to close it. A partner who only wants the build work will miss the risks that reprice the deal. You want both mandates understood, even if you staff them differently.
How to judge the value claim itself
Here is where most engagements go soft. A partner claims their work “could unlock significant efficiency” or “positions the company for growth.” That is not a claim you can hold anyone to. Before you accept any value assertion, insist it be classified honestly.
I hold every impact statement, my own included, to one of five categories:
- Realized: it already showed up in the numbers, with a baseline and a period.
- Run-rate: it is annualized from a proven monthly result.
- Forecast: it is projected and has not happened yet.
- Enabled: the work removes a constraint, but someone else has to act to capture the value.
- Risk avoided: it prevents a loss you can size but will not see in a growth line.
The discipline is refusing to let forecast or enabled value be presented as realized. When a partner says a project “will save $2M a year,” the honest version is usually “forecast, assuming adoption we have not yet observed.” That is not pedantry. It is the difference between a value-creation memo and a sales pitch. McKinsey’s private capital research has been consistent for years that value creation plans fail more often on execution and adoption than on the quality of the idea, which is exactly why the “enabled” versus “realized” line matters so much.
Ask any prospective technical partner to classify their last three claimed wins this way. The ones who can are the ones who have actually been on the hook for a number. The ones who hedge into “strategic value” are describing activity.
The metrics that survive an operating review
Technical work that matters shows up in the commercial dashboard, not a separate engineering dashboard. When I sit in portfolio company operating reviews, the technical partner’s contribution has to appear in the same KPIs the operating partner already tracks, or it does not exist as far as the fund is concerned.
Concretely, that means asking a technical partner to tie their work to line items like these:
- Gross margin, when platform cost or delivery efficiency is the lever.
- Net revenue retention and churn, when reliability or product gaps drive it.
- CAC and win rate, when the digital funnel or sales tooling is the constraint, which is often where a fractional CRO fixes win rate and CAC rather than revenue theory.
- Days to close and forecast accuracy, when systems feed finance.
- Integration cost and time-to-synergy, when the thesis is a roll-up.
A large share of the value I find in mid-market portfolios is not glamorous engineering. It is revenue leakage: broken lead routing, attribution that misreports where deals come from, pricing logic buried in code, renewals that fall through because the system never flags them. None of that is a technology problem in the way engineers talk about it. All of it is an EBITDA problem, and a technical partner who cannot see the P&L in the plumbing will walk right past it.
Embedded versus advisory, and why it decides the outcome
The structural choice you make when you engage a technical partner determines whether you get accountability or a document. An advisory firm produces recommendations and bills for the analysis. An embedded partner produces outcomes and stays until they land.
I am not neutral on this, and I will say why plainly. Recommendations are cheap to produce and easy to ignore. The gap between a good technical plan and a realized number is entirely execution and adoption, and adoption inside a portfolio company is a contact sport. It requires someone in the operating rhythm, in the standups and the QBRs, close enough to the team to see when a plan is quietly dying. That is a different commercial relationship than a report. Research from BCG’s principal investors and private equity practice makes the same point in its own language: the returns come from disciplined execution inside the business, not from the elegance of the plan.
This is also why the pricing structures differ. A diagnostic is a bounded, fixed-scope engagement that answers “what is true and what is worth doing,” and it should be priced as such. An embedded retainer is an ongoing accountability relationship, and it should be priced against the value it is on the hook to move. If a partner offers you the same shape of engagement regardless of whether you need diagnosis or execution, they have not thought about your problem.
Sequencing, because order is most of the value
Even a correct list of initiatives destroys value if you run it in the wrong order. The technical partner’s judgment about sequence is where experience shows, and it is the hardest thing to fake.
Stabilize before you build
If the monthly close is unreliable or the core system throws errors that erode customer trust, no growth initiative survives on top of it. Stabilization is not exciting, and it rarely makes a compelling board slide, but it is the precondition for everything that does. A partner who wants to start with the AI project on a broken foundation is optimizing for their own interest.
Fix leakage before you fund acquisition
Spending to acquire more customers into a funnel that leaks is a way to scale a loss. I would rather close the leaks first, because recovered revenue is realized value with no acquisition cost attached to it. This ordering discipline shows up throughout the common PE go-to-market pitfalls, and it is where a lot of value creation plans quietly go wrong.
Build the repeatable thing last
The playbook, the reusable platform, the thing that pays off across the portfolio, comes after the current company is stable and its leaks are closed. Building for portfolio leverage before the anchor company works is a common and expensive vanity. The discipline of building for durability is a theme I keep returning to in lessons on future-proofing organizations, and sequence is the operator’s version of it.
A short checklist you can use before you sign
When a technical value creation partner pitches you, put these questions on the table and watch how they answer:
- Which stakeholder is this deliverable for, and what decision does it change? If they cannot name the reader and the decision, the deliverable is generic.
- Show me your last three value claims, classified as realized, run-rate, forecast, enabled, or risk avoided. Hedging into “strategic” is a tell.
- Which of our commercial KPIs will move, and against what baseline? If they cannot name the line item, they are selling activity.
- In what order would you do this, and why that order? Sequence reveals whether they have operated or only advised.
- Are you accountable through adoption, or done at the recommendation? The honest answer sets your expectations for everything else.
None of these questions are technical. That is the point. The technical competence is table stakes at the level you are buying. What separates a partner who moves enterprise value from one who produces documents is whether they think in the fund’s currency and stay on the hook until the number moves.
Where this leaves you
A technical value creation partner is worth engaging when they can do three things: tell the deal partner what the technology means for thesis and exit, tell the CFO what it means for the forecast, and tell the operating partner what will move and in what order, then stay embedded until it does. Everything else is decoration. The industry data from Bain, McKinsey, and BCG’s private equity research all point the same direction: returns now come from operational execution, and execution is where technical work either compounds or evaporates.
The way I have structured this at DevriX reflects exactly this split. A value creation diagnostic answers what is true and what is worth doing, on a fixed scope. An embedded retainer stays inside the company and is accountable for the number. If you are weighing a deal or holding a portfolio company where the technology touches revenue, margin, or exit, and you want a partner who thinks in your currency rather than in tickets and features, that is the conversation worth having. You can start it through the advisory intake, or review how the embedded work is structured across DevriX services.
Buy the enterprise-value improvement. Let the technology be the mechanism, and hold your partner to the number.
