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In the highly competitive and fast-evolving world of private equity (PE), due diligence is far more than a procedural formality—it is the foundation of value creation. According to a 2024 Accenture Research survey, many private equity leaders recognize the indispensable link between high-quality due diligence and superior investment returns. Yet, despite this critical insight, a striking 83% of respondents confess that their current due diligence practices remain outdated and fall short of their expectations.

The root of this dissatisfaction is undeniable: the industry continues to rely on manual processes to gather, analyze, and interpret vast swaths of data. These archaic methods are increasingly incapable of meeting the complex demands of today’s private equity landscape. In fact, 75% of those surveyed by Accenture acknowledge that the increasing complexity of investments is at odds with the tools currently available to facilitate due diligence, creating a significant performance gap. This disconnect is analogous to making a call on a rotary phone when a smartphone is handy—a glaring contradiction in an era defined by technological innovation.

To thrive in today’s volatile and data-driven market, private equity firms must reconsider their approach to due diligence, adopting more advanced, efficient strategies that can match the sophistication of modern investments and deliver superior returns.

The Tangible Costs of Manual Due Diligence: Time, Money, and Risk

Due diligence is inherently time-consuming, with the process typically extending over three to twelve months, depending on a deal’s complexity. 

While the process may appear methodical, it also underscores a critical resource in private equity: time. Analysts and associates often work over 100 hours a week during live deals, dedicating substantial hours to organizing, cleaning, and validating data. This task becomes increasingly daunting as datasets balloon in size and complexity, heightening the risk of human error. These errors can compound over time, leading to inflated costs, delays in decision-making, and, potentially, missed opportunities.

Moreover, when junior team members are tasked with sifting through extensive data to extract critical insights, the risk of overlooking important information is significant. This can result in incomplete or flawed operating models, which in turn distort value creation strategies.

The financial implications of these inefficiencies are far-reaching. Private equity firms commonly hire third party providers to slice and dice data at remarkably high cost—sometimes as much as several million dollars to perform due diligence. For a $500M deal, such an expenditure is a reasonable price to pay. But most deals aren’t quite so robust. And if a deal falls through or is lost to a competitor, the amount of time and resources spent on a failed transaction is essentially wasted; these resources that could have been allocated to pursuing new opportunities or optimizing other investments.

The Dilemma: Depth vs. Speed

One of the inherent paradoxes of manual due diligence is that the more data is gathered, the longer the process becomes. This protracted timeline increases the likelihood of missed opportunities in today’s hyper-competitive market. With the pressure to close deals swiftly, firms may find themselves at a distinct disadvantage if they are still bogged down in the minutiae of data review while competitors have already moved forward.

In this race against time, junior deal team members often resort to superficial methods (e.g., cursory reviews of available data) to expedite the due diligence process. Analysts are relied upon to serve critical insights that inform the investment thesis and decision, but finite time and resources can mean results are not optimally exhaustive or validating. In an environment where precision and strategic foresight are paramount, such shortcuts can have dire consequences.

Therein lies the justification for transition to an AI-enabled due diligence application like Keye, which performs intelligent analysis with speed, depth and variety human analysts simply cannot achieve. When time is limited (and it always is), Keye can slice large quantities of data with varied parameters with a level of efficiency and thoroughness public equity firms need to make informed decisions. 

Reputational Risk: A Hidden Cost of Inefficiency

In private equity, reputation is not just an asset—it’s currency. A firm’s reputation can be the difference between accessing exclusive off-market opportunities and being left behind in the deal-making race. High-performing firms, renowned for their due diligence acumen, are better positioned to attract top-tier investment opportunities. They are also more likely to cultivate long-term relationships with management teams, who are more inclined to partner with investors that are known for their thoroughness and reliability.

Beyond deal flow, reputation plays a critical role in talent acquisition and retention. Firms with a strong reputation are better able to attract the best and brightest professionals, who are essential to driving innovation and sustaining growth. The cost of hiring and retaining top talent is significant—not only in terms of compensation but also in the time invested in training and onboarding. In a sector where time is of the essence, inefficiencies in due diligence processes can also impact a firm’s ability to build and maintain a high-performing team.

The Path Forward: Embracing Automation and Innovation

As the limitations of manual due diligence become increasingly evident, private equity firms are turning to automation to alleviate these inefficiencies. Advanced tools and technologies enable firms to handle vast datasets with greater precision, uncover insights that would otherwise remain hidden, and evaluate opportunities at scale. This shift to automation doesn’t just streamline operations; it also fosters better-informed, higher-performing investments, ultimately driving superior returns.

The future of private equity will belong to firms that embrace innovation. By moving beyond the outdated practices that burden today’s industry and investing in cutting-edge technologies, these firms will not only survive—they will thrive. In a world of rapidly changing market dynamics, those who prioritize efficiency, data-driven insights, and automation will be best positioned for long-term success and growth.

Ultimately, the firms that recognize and address the hidden costs of manual due diligence will be the ones that lead the next wave of industry transformation, securing their place at the forefront of an ever-evolving market.

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If you have thoughts on the challenges of manual due diligence or want to learn more about how AI can transform your investment process, feel free to reach out. Interested in pushing the boundaries of AI in private equity? We’re hiring. Let’s build the future of due diligence and private equity together!

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