Private equity software deals die on revenue quality, retention, concentration, tech debt, and security — not on pretty ARR headlines. Use this guide to screen software and SaaS targets before LOI and run a sharper confirmatory workstream after it.
Software PE due diligence is the structured review of a software, SaaS, or software-enabled business before a buyout, growth equity check, or platform add-on. Buyers are underwriting a cash-flow machine whose assets are code, customers, and contracts — not factories and inventory.
That changes the kill criteria. A manufacturer with messy working capital can still close. A SaaS business with collapsing net revenue retention, one customer at 35% of ARR, or a forced platform rewrite can destroy entry multiple assumptions before SPA redlines start.
ARR/MRR bridge, bookings vs billings vs revenue, deferred revenue, contract term mix, multi-year vs monthly, price increases, and one-time services contamination.
Logo churn, dollar churn, GRR/NRR, expansion vs contraction, cohort curves by segment, and whether growth is real expansion or new logos papering over churn.
Concentration, NRR by cohort, sales efficiency (CAC, payback, magic number), channel dependence, win/loss themes, and pipeline quality for the next 12 months.
Architecture age, cloud cost structure, roadmap credibility, technical debt, single points of failure, open-source license risk, and engineering capacity to ship.
SOC 2 / ISO claims, breach history, data residency, pen-test findings, access control, and customer-contract security SLAs that become deal conditions.
IP assignment chain, key-person risk, equity/option overhang, change-of-control clauses, litigation, and founder/executive retention post-close.
| Metric | What good looks like (context-dependent) | Red flag |
|---|---|---|
| ARR / MRR bridge | Clean new / expansion / churn / contraction bridge monthly | Bridge does not reconcile to recognized revenue |
| NRR (net revenue retention) | Often 100%+ for durable SaaS; segment it | NRR falling quarter over quarter with no plan |
| GRR (gross revenue retention) | High 80s-90s+ depending on SMB vs enterprise | GRR collapse in core logo base |
| Gross margin | Software COGS discipline; hosting efficiency | Hosting + support costs exploding with scale |
| CAC payback | Payback aligned to sales cycle and churn | Payback longer than useful customer life |
| Rule of 40 | Growth % + margin % balanced for stage | Growth only via unsustainable spend |
| Deferred revenue / billings | Billings support ARR narrative | ARR up, cash billings flat/down |
| Customer concentration | Top 10 diversified; contracts protect | Top customer above 25-30% without lock-in |
If the CIM shows ARR without a bridge to cash and recognized revenue, treat the number as marketing until proven. PE models that price on headline ARR without GRR/NRR cohorts overpay systematically.
Traditional software multi-workstream diligence often runs $50K-$250K+ and 3-8 weeks. A structured first-pass public-info pack is $49 per target — or $129 for a 3-Pack shortlist with a comparison PDF.
Order a software PE pack · $39.20 launch → See software sample PDFFirst-pass list for buyout screening. Severity tags: Deal-Killer, High, Watch.
| Signal | Severity | Why it matters |
|---|---|---|
| NRR falling while ARR still growing | Deal-Killer | New logos may be masking a rotting base |
| Top customer above 30% revenue, short contract | Deal-Killer | Single renewal can break the model |
| ARR up, cash billings flat | High | Accounting narrative without cash truth |
| Major rewrite planned year 1 | Deal-Killer / High | Capex + delivery risk on day-one thesis |
| Security incident + weak disclosure | Deal-Killer | Enterprise sales freeze; legal exposure |
| Contractor-built core without IP assignment | Deal-Killer | You may not own what you are buying |
| CAC payback longer than useful life | High | Growth destroys value |
| Heavy services revenue labeled recurring | High | Multiple compression when cleaned |
| Approach | Typical cost | Typical time | Best use |
|---|---|---|---|
| Public kill screen + structured pack | $49 / target ($129 3-Pack + comparison PDF) | Minutes to hours | Pre-LOI triage, shortlist ranking |
| Boutique commercial + tech memo | $15K-$75K | 1-3 weeks | Serious process before exclusivity |
| Full QoE + tech + legal software stack | $50K-$250K+ | 3-8 weeks | Post-LOI confirmatory |
Use cheap screens to decide which names deserve expensive specialists. Do not reverse the order.
dodilligence delivers institutional-style public-information diligence PDFs for named software targets. Use them to:
Related: Software company library · Software sample report · Technology DD guide · Financial DD guide · PE teams · Valuation guide
It is the structured review of a software or SaaS company before a private equity buyout, growth equity investment, or add-on acquisition. It covers revenue quality, retention, customers, technology, security, and legal/IP risk.
ARR bridges, GRR/NRR, churn, CAC payback, gross margin, deferred revenue/billings, concentration, and cohort retention. If those do not reconcile, stop trusting the CIM narrative.
Public screening: hours to days. Full confirmatory stacks: often 3-8 weeks after LOI.
Collapsing NRR, extreme concentration, forced rewrites, IP ownership gaps, material security incidents, and revenue that does not match cash.
Specialist stacks often $50K-$250K+. First-pass public-info packs start at $49 per target; 3-Pack shortlist with comparison PDF is $129.
Light public product and security signals: yes. Deep code review: usually after LOI access.
It overweights recurring revenue quality, retention cohorts, product risk, cloud costs, cybersecurity, and IP chains versus plant and inventory.
No. It prioritizes questions and kills weak names early. Specialists still run confirmatory work on finalists.
Each target has a free 1-page brief and a full 20-page PDF diligence report ready to order. Pick a name to start screening.
Institutional PDF pack from public sources. $49/report · $129 3-Pack with comparison PDF · dual legal acceptance at checkout.
Order report → Order 3-Pack → Software sampleScreening frameworks across every active deal sector. Each guide maps to buyable company reports.