Still relying on Commercial DD alone? It’s time for Digital Due Diligence.

Digital touchpoints increasingly define customer experience and drive enterprise value across a wide range of businesses. In this deal environment, traditional Commercial Due Diligence (CDD) often fails to capture the full picture.

Whether the target is a D2C brand, a B2B SaaS platform, or a tech-enabled insurer, performance across the core stages of the digital customer journey often decides between scalable growth and stalled performance.

This is where Digital Due Diligence (DDD) comes in—as a complementary lens to Commercial DD. DDD evaluates the effectiveness, scalability, and resilience of the digital engine underpinning the business. Importantly, many of these insights can be generated well before traditional diligence begins—using publicly available data, benchmarking tools, and customer experience analysis to shape early investment hypotheses.

For private equity investors, omitting to dive deeper into the foundations of digital businesses during due diligence doesn’t just mean potentially missed value creation opportunities, it could lead to an incomplete investment thesis and inaccurate assumptions in the LBO-model.

What Do Investors Gain from Digital DD?

Put simply, Digital DD—as I define it—focuses on the three critical phases of a digital customer journey:

1. Customer Acquisition – Through which digital (and non-digital) channels are customers acquired, and at what Customer Acquisition Cost (CAC)?

2. Customer Conversion – How effectively are prospects on the digital platform (website or app, mobile or desktop) converting into paying customers? What are conversion rate upside potentials and the resulting impact on CAC?

3. Customer Retention – How well is the business engaging its existing customers to encourage repeat purchases, loyalty, and advocacy—in other words, how strong is its ability to increase Customer Lifetime Value (CLV)?

In addition, DDD assesses:

• The applications enabling these processes (or the absence thereof, pointing to untapped growth levers), and

• The teams and skill-sets responsible for managing and optimizing these customer journey stages.

Distinguishing Digital DD from Tech/IT DD

Digital DD is often equated to Tech DD. While there is of course no DIN-certified, common agreement on what constitutes Digital or Tech DD, let me outline how I differentiate:

While DDD is concerned with some aspects of the target's application landscape such as the marketing and sales tech stack deployed, it does not focus on typical aspects of Tech DD, such as IT infrastructure scalability, maintainability and security or the development capabilities and code quality of the target.

It does focus on 3 key steps of digital customer journeys and the key insights and value creation levers in each of them. Let's dive in:

The 3 core steps of the Digital Customer Journey

1. Acquisition – Marketing effectiveness

Digital DD rigorously evaluates the business’s marketing spend and acquisition tactics. At its core, we aim to answer:

• How have CACs evolved historically—and why?

• What trends are likely to shape CACs going forward?

To address this, we examine the sources of digital traffic and investment as well as performance in above-the-line (ATL) and below-the-line (BTL) marketing channels:

• To what extend are upper-funnel, ATL brand investments driving direct traffic or brand searches?

• How much traffic is paid or unpaid and how have shares by channel developed?

• What portion of unpaid is earned, e.g. through consistently great SEO execution?

• Which paid keywords are being targeted in SEA?

• Which incremental potential exists in SEA, SEO or other paid channels?

In short: If the target had additional marketing budget, where could it be deployed most effectively? With sufficiently granular internal data, even high-level marketing mix models can be developed to estimate response curves per channel.

We also contextualize performance by reviewing organizational setup:

• Is there a coherent marketing strategy?

• What KPIs are tracked, and what are campaigns optimized for?

• How is the marketing function structured, and how does it fit into the broader organization?

Finally, understanding the Return on Marketing Invest (ROMI) or Return on Ad Spend (ROAS) in individual channels allows inferences for future growth strategies. High ROAS multiples for example, imply room for more aggressive growth in the future.

2. Conversion – Platform performance

The second half of the CAC equation is the platform's conversion rate:

• What percentage of incoming visitors—often acquired at significant cost—are converting?

Note: “Conversion” varies by business model. For a SaaS company, it might be a completed contact form and thus a qualified lead. For a D2C shoe brand, it’s a purchase. For a comparison site, it may be a referral to a lending partner.

We then explore:

• How have conversion rates (CVR) evolved over time—by device, channel, or user segment?

• What’s driving improvements or declines in performance?

• At what points in the journey are customers dropping off?

• To what extent is poor UX a contributing factor?

We also assess whether a continuous improvement process exists:

• Is there a team dedicated to A/B testing or CRO (conversion rate optimization)?

Finally, we want to understand:

• What is the potential for CVR improvement—and how can it be unlocked? And what is the ceteris paribus impact on CAC?

3. Retention – Customer engagement

Once a customer is acquired, the focus shifts to retention and maximizing CLV. DDD analyses here depend heavily on the business model.

For an investment platform or lifestyle app, the key dimensions often include:

• Daily or Monthly Active Users (DAUs/MAUs)

• Customer satisfaction and feedback

• Feature parity or differentiation vs. competitors

For a classic e-commerce model, key aspectsare:

• Newsletter subscriber development / Opt-ins for direct outreach

• Ability of the target to provide next-best-offers via automated, yet personalized marketing outreach

Many of the best practices in customer engagement require a 360 degree understanding of the customer, i.e. a holistic set of customer data including historical activity and purchasing data. Whether a target it is able to capture and activate these data is an insight in itself, and current capability a strong starting point for predictions about future potential - as well as investment requirements.

Customer experience benchmarking is another powerful outside-in tool with assessing customer engagement. By assessing journeys across competitors—from sign-up, purchase journey to app usability to recommendation mechanics—we can uncover gaps in the target’s offering. This often involves primary research, like setting up accounts or running UX tests, to generate high-confidence hypotheses with indicative value quantification.

In nearly all cases, CRM and marketing automation (via email, push, or direct mail) is a relevant lever. Evaluating current CRM capabilities and tools reveals whether customer engagement is a latent growth opportunity—or already a source of competitive advantage.

Digital footprints: Outside-In vs. Inside-Out analyses

Every customer action online leaves a trail. Digital DD allows for robust outside-in analyses, even before data rooms are opened or an information memorandum is issued.

By using third-party tools like Google, Sistrix, Similarweb, or AppAnnie, we can:

• Evaluate traffic patterns and keyword performance

• Benchmark the target’s digital performance vs. competitors

Similarly, customer experience benchmarking enables early-stage assessment of digital strengths and weaknesses—creating a value creation narrative that can be validated once inside-out DD begins.

Key insights: Risk Identification and Value Creation

Why should investors prioritize Digital DD?

Because it helps identify both risks and upside. Risks might include:

• Overreliance on SEO traffic, making the business vulnerable to algorithm changes

• Rising CPCs or increased competition in key acquisition channels

• End-of-life tech stacks requiring significant effort and investment into new technology

On the flip side, DDD can highlight opportunities to:

• Unlock underutilized marketing channels

• Optimize paid spend ROI

• Improve UX/CX metrics

• Enhance CRM personalization and automation

The result: tangible, data-backed value creation plans that strengthen the investment case and build credibility with management—shifting discussions from price to partnership.

Relevant Sectors for Digital DD

Digital DD isn’t just relevant for targets in consumer, retail, e-commerce, D2C and marketplaces.

It's highly relevant across all industries with digitally-mediated customer journeys, including - but not limited to:

• AdTech and affiliate networks

• B2B and B2C SaaS

• Consumer finance and insurance

• Online comparison platforms

• QuickCommerce

• Mobility

• HealthTech, CleanTech, and AgriTech

In each of these verticals, digital engagement drives business performance—and deserves close scrutiny.

Where Digital DD sits within the overall deal

In CDD processes targeting digitally-oriented businesses, I typically advise embedding select Digital DD modules. This may expand the scope and resource needs, but as outlined above, the return on effort is considerable.

Alternatively, Digital DD can stand alone. In fact, many clients—especially in mid to large-cap deals—engage DDD teams well before official processes kick off, precisely because early outside-in insights are so actionable. Some clients even select different providers for CDD and DDD, tapping specialists in each domain.

Summary (TL;DR)

Digital Due Diligence is an increasingly indispensable component of investment evaluation for businesses with digital customer interfaces.

It provides clarity on how effectively a business acquires, converts, and retains customers.

By assessing both publicly available as well as company-data, the supporting tech stack, organizational structure, and real-world customer experience, DDD highlights not just potential red flags but also high-confidence value creation levers.

For private equity investors, it should be a standard tool within the DD quiver as it enhances conviction, sharpens value plans, and provides relevant talking points for discussions with the target's management about how to create value. And thus it may help investors gain an edge vs. their peers, particularly among founder-led assets, as DDD's insights illustrates that "you get it".

Over the next few months I intend to dive deeper into a selected aspects of DDD, providing anonymized examples for analyses, insights generated and implications for the investment thesis.

If you are interested in specific aspects of DDD or have questions, please send me a DM.