Due Diligence in Private Investments: What to Look For by Jack Estes DeBrabander

Back to All Articles

Due diligence is the single most important process in private market investing. While the allure of high returns and exclusive access to pre-IPO companies can be compelling, the reality is that private investments carry significant risks that can only be managed through thorough, disciplined analysis of every aspect of a potential deal. Unlike public market securities, where extensive regulatory disclosure and analyst coverage provide a wealth of readily available information, private investments require investors to do their own homework, or to work with a trusted professional who can do it on their behalf. Jack Estes DeBrabander has developed a comprehensive due diligence framework that evaluates private investment opportunities across multiple critical dimensions, ensuring that every deal presented to investors has been rigorously vetted.

In this article, Jack Estes DeBrabander shares the key components of effective due diligence for private investments, providing investors with a roadmap for evaluating opportunities whether they are conducting their own analysis or reviewing the work of an experienced advisor. Understanding what to look for, and what red flags to watch for, is essential for protecting capital and positioning for strong returns in the private markets.

Why Due Diligence Matters More in Private Markets

In public markets, investors benefit from layers of protection that simply do not exist in private transactions. Public companies are required to file audited financial statements with the SEC, disclose material events in real time, and submit to regulatory oversight from multiple agencies. Equity analysts at major financial institutions publish detailed research reports, and the collective wisdom of millions of market participants contributes to efficient price discovery.

Private companies operate in a fundamentally different information environment. They are not required to publish financial statements, they are not covered by equity analysts, and their securities are not priced by a liquid market. This information asymmetry creates both opportunity and risk. The opportunity exists because investors who can effectively analyze private companies may identify mispriced opportunities that generate substantial returns. The risk exists because without proper analysis, investors may commit capital to deals that carry hidden problems or unfavorable terms.

Jack Estes DeBrabander views due diligence not as a box-checking exercise but as the foundation of every investment decision. The framework used to evaluate private deals is designed to be thorough, systematic, and repeatable, ensuring that no critical factor is overlooked and that every opportunity is evaluated against a consistent set of quality standards.

Financial Analysis: Understanding the Numbers

The financial analysis component of due diligence involves a deep examination of the company's historical financial performance and forward-looking projections. This begins with a review of the income statement, balance sheet, and cash flow statement for at least the past three years, where available. Key metrics to examine include revenue growth rates, gross margin trends, operating expenses as a percentage of revenue, and the trajectory of profitability or losses over time.

Revenue quality is a particularly important consideration. Jack Estes DeBrabander examines whether revenue is recurring or one-time, whether it is concentrated among a small number of customers or broadly diversified, and whether growth is organic or driven by acquisitions. A company with high-quality recurring revenue from a diversified customer base presents a fundamentally different risk profile than one dependent on a handful of large contracts.

Cash flow analysis is equally critical. Many high-growth private companies are not yet profitable on a GAAP basis, but that does not necessarily make them poor investments. The key question is whether the company has a clear path to cash flow breakeven and whether it has sufficient capital to reach that milestone without excessive dilution. Jack Estes DeBrabander carefully models the company's burn rate, runway, and future capital needs to assess whether the current financing round will be sufficient to achieve the next set of value-creating milestones.

Finally, the valuation at which the investment is being offered must be scrutinized relative to comparable companies, comparable transactions, and the company's own financial projections. An attractive company at an excessive valuation is not an attractive investment. Jack Estes DeBrabander applies multiple valuation methodologies, including revenue multiples, earnings multiples, and discounted cash flow analysis, to determine whether the offering price represents fair value for investors.

Management Assessment: Evaluating the Team

In private market investing, the quality of the management team is often the single greatest determinant of success or failure. Early and growth-stage companies face countless challenges as they scale, and the ability of the leadership team to navigate these challenges, make sound strategic decisions, and execute on the business plan is paramount. Jack Estes DeBrabander places significant emphasis on management evaluation as a core component of the due diligence process.

The assessment begins with a review of the backgrounds and track records of the CEO, CFO, and other key executives. Relevant questions include: Have these individuals successfully built and scaled companies before? Do they have deep domain expertise in the industry in which the company operates? Have they navigated the challenges of raising capital, hiring talent, and entering new markets? A management team with a proven track record in similar environments provides significantly more confidence than one leading a company into uncharted territory for the first time.

Beyond individual backgrounds, Jack Estes DeBrabander evaluates the team's alignment of interests with outside investors. This includes examining equity ownership structures, vesting schedules, compensation arrangements, and any related-party transactions that could create conflicts of interest. A management team that has meaningful personal capital at risk alongside investors is generally more motivated to create long-term value than one that is primarily compensated through cash salary.

Governance structures also receive careful attention. The composition of the board of directors, the presence of independent board members, and the existence of appropriate committees for audit, compensation, and strategic oversight all provide important signals about the maturity and professionalism of the company's management framework. Jack Estes DeBrabander views strong governance as a leading indicator of management quality and a critical safeguard for investor capital.

Market Sizing and Competitive Analysis

Even the best management team cannot succeed in a market that is too small, too competitive, or structurally unfavorable. Market analysis is a critical component of due diligence that evaluates whether the company is operating in an environment that supports the kind of growth implied by its financial projections and valuation. Jack Estes DeBrabander conducts independent market research to assess the total addressable market, the serviceable addressable market, and the company's realistic share of that market over the relevant investment horizon.

Competitive analysis examines the landscape of existing players and potential new entrants. Key questions include: What is the company's competitive advantage, and how sustainable is it? Are there significant barriers to entry that protect the company's market position, such as proprietary technology, network effects, regulatory approvals, or switching costs? How do the company's unit economics compare to those of its competitors?

Jack Estes DeBrabander is particularly attentive to the risk of market disruption. In fast-moving sectors like technology and healthcare, the competitive landscape can shift rapidly, and companies that appear to be in strong positions today may face existential threats from new technologies or business models. Evaluating the durability of a company's competitive advantage is one of the most challenging and most important aspects of private market due diligence.

Legal and Structural Review

The legal and structural dimensions of a private investment deserve careful scrutiny because the terms of the deal can significantly affect investor returns regardless of the company's underlying performance. Jack Estes DeBrabander reviews all offering documents with experienced securities counsel, including the Private Placement Memorandum, subscription agreement, operating agreement, and any side letters or ancillary agreements.

Key structural considerations include the type of securities being offered, whether equity, preferred stock, convertible notes, or another instrument, and the specific rights and protections associated with those securities. Preferred stock, for example, typically carries liquidation preferences that determine the order in which investors are paid in the event of an exit. The size and structure of these preferences can have a material impact on investor returns, particularly in scenarios where the exit value is lower than the total amount of capital raised.

Anti-dilution provisions protect investors from the negative effects of future financing rounds at lower valuations. Information rights ensure that investors receive regular financial and operational updates. Registration rights determine whether and when investors can sell their shares in a public market following an IPO. Jack Estes DeBrabander evaluates each of these terms in the context of the specific deal, ensuring that investors understand both the protections they are receiving and any areas where the deal structure may present additional risk.

The Jack Estes DeBrabander Due Diligence Framework

Bringing all of these elements together, the due diligence framework employed by Jack Estes DeBrabander follows a structured, multi-stage process. The first stage involves initial screening, where potential deals are evaluated against high-level criteria including sector fit, stage of development, capital requirements, and preliminary valuation assessment. Only opportunities that clear this initial screen advance to the full due diligence process.

The second stage involves deep-dive analysis across all four dimensions: financial performance, management quality, market opportunity, and legal structure. This stage typically involves direct engagement with the company's management team, including detailed question-and-answer sessions, site visits where applicable, and reference checks with customers, partners, and previous investors.

The third stage is the investment committee review, where the findings of the due diligence process are synthesized into a comprehensive investment memorandum. This document provides a balanced assessment of the opportunity, including both the investment thesis and the key risks that could undermine it. Only deals that receive approval through this process are presented to the investor network.

Jack Estes DeBrabander believes that this disciplined approach to due diligence is what separates successful private market investing from speculative capital deployment. While no amount of analysis can eliminate risk entirely, a rigorous and systematic evaluation process significantly improves the probability of positive outcomes and protects investors from the kinds of avoidable mistakes that can destroy value in private markets.