Why Digital Due Diligence is Still 5 Years Behind The Market

Why Digital Due Diligence is Still 5 Years Behind the Market

In an industry that prides itself on underwriting precision and repeatable value creation, it’s surprising how far behind digital due diligence still lags.

Most firms treat it as a bolt-on to commercial diligence. Quick audits of SEO performance, traffic trends, maybe a look at some ad spend. But this kind of high-level scan belongs in a different era. Today’s digital ecosystems are too complex, too dynamic, and too central to growth to be relegated to a few pages in the back of a CIM.

We’re in a world where the cost to acquire a customer has doubled in many categories, where third-party data is drying up, and where the growth levers have shifted from simple channel expansion to nuanced funnel optimization, media mix modeling, creative strategy, and conversion rate improvements. Yet diligence still asks: “How’s their website?” instead of “What will it cost to grow this business by $5M in revenue over the next 12 months, and is that efficient?”

The leading operators inside portfolio companies are building out detailed customer journey analytics, running geo tests, deploying incrementality measurement tools, and blending brand and performance to extract maximum ROI. They’re using data pipelines to connect marketing, sales, and finance, and instrumenting every touchpoint to optimize conversion. But diligence is still exporting screenshots from Ahrefs and Google Analytics.

To truly understand the digital growth potential of a target, diligence needs to answer far more strategic questions:

• How is this company acquiring and converting customers, and how does that compare to the category benchmark?

• What are the marginal CACs by channel?

• Where are competitors overbidding or underspending and what would it cost to steal market share?

• How well is the business leveraging first-party data, and what’s the roadmap to improve retention, upsell, or cross-sell?

• What is the digital operating model maturity and does the company even have the in-house talent and tech to scale?

This is about translating digital into a language that investors understand: investment-grade growth strategy. Without that, we’re not underwriting growth, we’re guessing. As digital continues to represent an ever-larger slice of enterprise value, the firms that upgrade their diligence approach will have a clear edge. Digital due diligence shouldn’t trail behind the market by five years. It should be five years ahead.