The Due Diligence Blind Spot
PE firms deployed over $800B in tech acquisitions in 2025. ~40% failed to meet their thesis within two years due to hidden engineering liabilities.
Red Flag #1: Maintenance Load Above 65%
Ask the CTO what percentage goes to maintenance vs. new features. If they don't know - that's a red flag. If it's above 65%, you're buying a company spending more on lights-on than value creation.
Red Flag #2: Single Points of Knowledge
Map the "bus factor" for every revenue-critical system. Any system with a bus factor of 1 needs immediate knowledge transfer planning.
Red Flag #3: Undocumented AI Costs
Many companies book AI costs as R&D without breaking them out. A company reporting 80% gross margins might actually have 60% when you properly allocate AI costs to COGS.
Red Flag #4: Deployment Frequency Below Weekly
A 50-person team deploying less than weekly signals fragile code, insufficient testing, or high coordination costs.
Red Flag #5: No Engineering Economic Model
If the CTO can't articulate decisions in economic terms, they're making capital allocation decisions without frameworks. Budget 6-12 months and $200-400K post-acquisition.