Preparing Tech Orgs for PE Due Diligence
A CTO shares strategies for navigating Private Equity expectations, managing technical debt, and preparing for M&A due diligence. Learn how to translate technical risks into business value and build scalable decision-making structures in mid-market e-commerce.
Navigating Private Equity Expectations
In the high-pressure environment of Private Equity (PE) backed companies, the Chief Technology Officer (CTO) faces a dual mandate: drive rapid revenue growth while maintaining long-term technical stability. Olga Korkova, CTO at Barfas, a Berlin-based e-commerce pet food company, outlines a strategic framework for managing these conflicting demands. The core insight is that technical due diligence is not a one-time event but a continuous state of readiness. Since PE firms typically hold assets for five to seven years, the CTO must assume an exit is inevitable and structure the technology stack accordingly from the moment of acquisition.
The Transparency Strategy
A common misconception is that a perfect codebase is required for a successful exit. Korkova argues the opposite: investors are wary of "too perfect" landscapes, which often signal hidden risks. Instead, the CTO must proactively document technical debt, architectural decision records (ADRs), and known vulnerabilities. By presenting a clear remediation plan and cost-benefit analysis for legacy issues, the CTO demonstrates control and foresight. This transparency transforms potential deal-breakers into manageable line items, providing buyers with the confidence to proceed.
Operationalizing Scalability
To manage the speed expected by investors without sacrificing quality, Korkova implemented a rigorous delegation structure. By creating an "Official Engineering Playbook" that defines system design, CI/CD pipelines, and testing standards, she empowered engineering leads to make low-to-mid-level decisions autonomously. This eliminated the CTO as a bottleneck, allowing her to focus on high-level strategy and investor communication. Crucially, she emphasizes the need to translate technical constraints into business language, using metrics like ROI and dependency costs to justify investment timelines to non-technical stakeholders.
Architectural Hygiene
From an architectural standpoint, the focus was on decoupling core e-commerce transactions from ancillary functions. By stripping non-essential logic from the Shopify platform and moving data analytics and operational processes to satellite systems, the organization improved scalability and maintainability. Additionally, the adoption of Infrastructure as Code (IaC) via Terraform was identified as a non-negotiable standard for auditability. These structural improvements ensure that the technology stack is not only functional but also verifiable and transferable, maximizing the company's valuation in the M&A process.
Key insights
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Private Equity investors prioritize transparency over perfection in technical due diligence. Hiding technical debt is riskier than disclosing it with a clear remediation plan.
Impact: Increases buyer confidence and reduces deal friction by demonstrating proactive risk management and organizational maturity.
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The CTO role in PE-backed firms requires translating technical decisions into financial metrics, such as ROI and dependency costs, to align with investor expectations.
Impact: Facilitates faster approval of technical investments and reduces friction between engineering and finance/marketing departments.
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Creating an engineering playbook and delegating low-level architectural decisions to team leads eliminates the CTO bottleneck and enables scalable decision-making.
Impact: Allows the CTO to focus on strategic growth and investor relations while ensuring consistent technical quality across teams.
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Infrastructure as Code (IaC) is a critical requirement for technical auditability. Manual cloud provisioning is a significant red flag for potential acquirers.
Impact: Ensures reproducibility and security of infrastructure, reducing operational risk and increasing the technical asset's valuation.
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E-commerce platforms like Shopify should be kept lean, handling only core transactions. Data analytics and operational logic must be decoupled into satellite systems.
Impact: Prevents platform bloat and improves scalability, allowing for faster iteration and clearer data insights for business decision-making.
Action items
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Implement a continuous documentation process for all architectural decisions and known technical debts, ensuring they are visible and up-to-date at all times.
Impact: Reduces the time and stress associated with preparing for due diligence and provides a clear roadmap for technical improvements.
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Develop an engineering playbook that defines standards for system design, testing, and CI/CD, empowering team leads to make autonomous technical decisions.
Impact: Scales the engineering organization without increasing CTO workload, ensuring consistent quality and faster feature delivery.
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Adopt Infrastructure as Code tools like Terraform for all cloud resources to eliminate manual provisioning and ensure full auditability.
Impact: Mitigates operational risks and satisfies key technical due diligence criteria, making the infrastructure more attractive to investors.
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Decouple non-transactional logic, such as data analytics and operational workflows, from the core e-commerce platform to improve performance and maintainability.
Impact: Enhances system scalability and allows for independent optimization of data and transaction layers, supporting better business insights.
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Train CTOs and senior engineers to present technical risks and investments in financial terms, focusing on ROI, cost avoidance, and business impact.
Impact: Improves communication with non-technical stakeholders and investors, leading to better alignment and faster decision-making on technical initiatives.
Quotes
“ein Investor, der auf eine nach außen hin perfekte Technologie-Landscape schaut, also ich als Investor wäre vorsichtig”
“für mich bedeutet das, okay, was sind dann technische Schulden? Wo ist diese rote Grenze, wo wir jetzt sagen, okay, das geht nicht mehr”
“die Frage, ob das jetzt so wichtig ist, wer der Käufer ist, die ist aus der technischen Sicht vielleicht gar nicht so wichtig”