41% of PE firms cannot substantiate their equity story because portfolio KPIs do not map to reported EBITDA

Operators and investors,

A value creation plan can run for 3 years with every initiative green in the board deck, and still come apart once the quality of earnings work begins.

41% of PE firms lack the data granularity needed to substantiate their equity stories, and 65% struggle to reflect value creation initiatives accurately in reported EBITDA. The improvement is real, but it sits in dashboards and slide decks that never write to the ledger. An auditor who cannot trace the claim back to the financials hands the buyer a reason to discount the multiple.

Today’s newsletter covers 4 topics:

• The KPI-to-EBITDA reconciliation gap & why it opens

• What ‘data granularity’ means in a QoE & how to build it backward

• The exit data roadmap that operating partners actually use

• Finance gets Excel, leadership gets dashboards: the two-format rule

We run the data visibility and RevOps instrumentation work that connects these operational systems to the ledger for PE-backed platforms preparing for exit or integration.

1. The KPI-to-EBITDA reconciliation gap & why it opens

The gap opens because operational improvements get tracked in systems that were never built to write to the ledger. Marketing runs in HubSpot, customer success runs in Gainsight, pricing changes live in a spreadsheet, and the SKU rollout is tracked in Monday.com. Each of those tools produces a dashboard, and each dashboard produces a green light in the monthly board pack.

Quality of earnings work asks where the margin improvement appears in the audited financials. The operating partner can show a slide, and the auditor can show a general ledger that does not reconcile to it. 72% of PE firms identify weak data and KPI reporting as the biggest finance issue at exit, which is the predictable result of tracking value creation in tools that produce no auditable evidence. The buyer then discounts the unproven portion of the story, and that discount is the price of instrumenting the KPIs late.

2. What ‘data granularity’ means in a QoE & how to build it backward

Data granularity in a quality of earnings context means an auditor can trace a claimed financial result back to the operational decision that produced it, with dates, system records and calculations visible at each step. Revenue growth on its own proves very little, so the auditor works down to the customers, contracts, pricing changes and SKUs behind the number, then reconciles all of it to the ledger.

Most PE-backed companies cannot produce that level of detail on demand. The CRM holds customer records, the billing system holds invoices, and the reconciliation between them lives in a spreadsheet that one person maintains. The export that reaches the auditor is manual, which means it carries no audit trail of its own.

Start with the equity thesis, and if the plan is to grow EBITDA through pricing and customer concentration, write down the exact KPIs an auditor will ask for at exit. Those KPIs become the written specification for the data architecture.

Take a price increase as the lever that carries the thesis. Substantiating it at exit requires customer-level pricing history, contract effective dates, revenue attribution by segment, and a monthly reconciliation to the P&L. In practice that means the CRM carries pricing tiers, the billing system captures contract dates, and both feed a single data model that closes against the general ledger every month.

3. The exit data roadmap that operating partners actually use

The roadmap runs in 4 stages, and it starts long before the planned exit date. EY recommends securing data readiness at least 12 months and ideally 24 months before exit.

Stage 1 maps the equity story to KPIs. The operating partner writes down the levers that will drive the exit multiple, converts each lever into a measurable KPI, and records what evidence an auditor will want to see. A customer concentration lever becomes revenue per customer and retention by cohort, evidenced by a monthly report that reconciles to the ledger.

Stage 2 instruments the systems. The portfolio company identifies which operational systems hold the required data, maps each one to the general ledger, and builds the automated feeds. A gap analysis at this point usually finds several KPIs that no system captures today, and those get added to the CRM, billing system or ERP.

Stage 3 puts reconciliation on a monthly cycle. Finance publishes the KPIs, the financial results and the bridge between them, the operating partner reviews the package, and discrepancies get fixed in the data or in the process that feeds it.

Stage 4 is a pre-QoE audit the firm runs internally, ahead of the buyer’s own auditor. A company that has worked through the earlier stages usually closes the remaining gaps in a few weeks of focused finance work.

4. Finance gets Excel, leadership gets dashboards: the two-format rule

The two-format rule gives finance and the auditor an Excel layer with full drill-down and visible formulas, and gives leadership and the board a dashboard layer with exceptions flagged. Both formats pull from the same unified data model, and they support different decisions.

The auditor will work in Excel, because the review depends on seeing the calculation, tracing each input to its source system and checking that the formula holds. A dashboard cannot carry that evidence, so the portfolio company maintains a parallel Excel reporting layer that exposes every step of the reconciliation.

Leadership works from dashboards, because board-level decisions turn on trends, outliers and exceptions. A dashboard surfaces an enterprise-segment churn spike in the quarter it happens, which puts someone on the cause while it is still fixable.

Both layers run from day 1, the Excel layer feeds the dashboard layer, and the audit trail always lives in the Excel layer.

This week, walk the CFO and operating partner of your largest holding through 2 questions:

• For each lever in the value creation plan, can you produce a monthly report that reconciles the operational KPI to a line item in the P&L, with drill-down to the source system?

• If an auditor asked today for the evidence behind the margin improvement or churn reduction you have claimed, how many weeks would it take, and how much of the work would be manual?

Score each answer red, yellow or green. A red on the first question means the exit story cannot be substantiated today, and the buyer will price that uncertainty into the multiple.

Mario

🔎 A seller-filled questionnaire is not a technical read. “Modern stack, experienced team, no significant debt” tells a committee nothing about cost at 3x volume or how much of the value creation plan rests on engineering that does not exist yet. Investor-grade diligence turns those three questions into defensible numbers.

💸 Raising prices 6 percent across every SKU is inflation pass-through. Real pricing power shows up when customers accept an increase above inflation, and EY puts 72 percent of PE firms citing weak data as their biggest finance issue at exit. Run the pricing test before the buyer does.

🤖 AI handles the back office, and leaves you alone on go-to-market. The BDR and marketing playbooks it learned from stopped working in 2023, which is why Ben Horowitz now names creativity and human relationships as the skills that separate founders. Automating GTM removes the person who closes the deal.

🎧 Product-market fit shifts before the company notices. On the Forbes Councils podcast with Ryan Paugh, Mario walks through the signals that buyer behaviour has already changed and why the fix starts with listening closely to customers again.

🎙️ Fifty-eight acquisitions taught him that every deal runs the same eight stages, from sourcing the list through diligence, contracts and close, the sequence he lays out here - by Adam Coffey

🎙️ Private equity will forgive almost any expense once adding it back gets the deal done, and restructuring and recruitment keep recurring every year, his read on add-backs here - by Lee McCabe

🎙️ Thoma Bravo signed to buy Anaplan at $66.00 a share and paid $63.75, because a clause capping pre-closing equity grants broke rather than the business, the clause he traces here - by Dieunor Michel

🎙️ Most portfolio ops hires fail on the wrong kind of operator, because firms that needed a builder keep hiring a maintainer, her breakdown here - by Shannon Talbot

🎙️ Firms know when a portfolio company changes its CEO or CFO and miss the VP of Marketing or Director of RevOps across 20 to 50 companies, the blind spot she names here - by Kate Hopkins

🎙️ M&A volume is breaking records across every sector while almost none of it is consolidation, because buyers assemble capability and access deal by deal, his read here - by Thomas Allgeyer

🎙️ Her customer success team at HubSpot hated the one annual business review per client with the account’s decision makers, and it worked anyway, the agenda she used here - by Daphne Costa Lopes

🎙️ The same AI can cut a B2B service contract’s margin by 50 percent or raise it by 50 percent, and the customer already expects the saving, his framing here - by George Davies

🎙️ Magnetar, known from The Big Short era, lent $50M to CoreWeave against Nvidia GPUs and customer contracts, the trade he walks through here - by Sunny Dhillon

🎙️ Just because AI can make a decision does not mean a company should let it, and the line between agent autonomy and human accountability has to be drawn deliberately, his governance note here - by Vince Fattore

🎙️ A higher for longer rate environment puts more pressure on underwriting assumptions and raises the weight carried by operational improvement, his note on cost of capital here - by Tim Tracy

🎙️ European VCs have a fundraising problem and European LPs have a liquidity problem, and the shared cause is a lack of exits, the trade sale case he makes here - by Petr Sima

Sponsor-backed platforms are buying capability rather than building it. Thoma Bravo’s Proofpoint agreed to acquire Varonis for $6.3bn in cash at 8.4 times trailing revenue, a price that only works if the combined platform reaches the existing 16,000-enterprise base quickly, which makes integration speed the whole return case.

Private credit distress is being deferred rather than resolved. Moody’s found that the default rate across 607 borrowers was 4% in the 12 months to June but rises to 5.8% once payment-in-kind amendments and distressed maturity extensions are counted, and 17% of that sample is already adding interest to principal instead of paying cash.

Agent governance is moving from policy to tooling. Microsoft’s security chief said frontier models cannot be trusted because they optimise for the task rather than organisational judgment, and the company now ships monitoring that detects up to 60 agent types employees bring in, which is the control any portfolio company running agents on customer data needs before the next audit.

The M&A recovery is real, and sponsors are not in it. Goldman Sachs booked a record $1.65bn in Q3 advisory fees while CEO David Solomon said sponsor share of announced deals stays below historical averages, with LPs steering fresh commitments into infrastructure and private credit instead of new buyout funds.

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 🌐 Scaling $50M - $500M+ mid-market companies with value creation through RevOps, data engineering, and WordPress. DevriX provides full RevOps consulting + delivery with GTM enablement for PE-backed portfolio companies, traditional tech, healthcare, finance, and professional service businesses pacing toward revenue growth initiatives. Our standard retainers between $10K and $60K include revenue lifecycle services for marketing and sales leaders, FP&A for financial teams, pipeline enrichment through websites and dozens of lead sources, automations and delivery integrations, CRO and ongoing testing, product delivery and platform integration solutions, and more through our consulting solutions.

 🚀 1:1 Advisory retainers. Supporting operating partners, private equity funds, family offices, and mid-market executives in different capacities, from value creation through due diligence to portfolio digital GTM management in my async advisory programs via Growth Shuttle.

 📈 GTM while scaling. European and international businesses can opt in for doola LLC and their “Business in a Box” model. Scaling founders can find smaller digital opportunities on Flippa. Additional opportunities across my investments can be found here.