If you only know Series A due diligence, brace yourself. The scrutiny ramps up hard when you hit Series B and beyond – and again when you lean into exit or liquidity.
Later‑stage investors and buyers don’t take your word for it. They pull threads. They test the seams. And if you’re not ready, value leaks. Fast.
That’s why we brought together three people who’ve lived this process on both sides of the table: Steve Leith, James Peck, and Timothy Mahapatra, for a one-hour masterclass.
They’ve guided hundreds of high‑growth companies through post‑Series B raises and exits. Below, you’ll find their tips on getting DD‑ready, with actionable steps to protect value and momentum along the way.
START EARLY. STAY ON THE FRONT FOOT
“It’s never too early. Even two years out, getting DD‑ready should be top of the CFO’s agenda.”
Timothy Mahapatra, Head of CP Deals, Cooper Parry
The pattern behind smooth processes and standout outcomes is consistent:
- Start early (18–24 months out for exit; earlier for Series C+ readiness).
- Build visibility (publish growth updates, keep your narrative alive on social media, and engage investment bankers early to build relationships and test the story).
- Decide your buyer universe (trade vs. PE vs. IPO). Each demands different evidence and emphasises different metrics.
- Be sale‑ready, always. Consistent growth story, credible forecasts, sticky earnings, clear cash conversion. If you can’t show it, it doesn’t count.
Actions to take
- Commission a readiness assessment across finance controls, accounting policies, tax structure, and legal structure. Identify gaps. Then, create an action plan.
- Build your data room spine (what documents you’ll need, by workstream) and start populating it now.
- Create a narrative tracker: your market position, ICPs, win stories, churn defence, product roadmap, and hiring plan – kept live and provable.
TAX: FROM AFTERTHOUGHT TO AGENDA
“Series A is light touch. Series B is where diligence gets real. Without a tax agenda, risks will bite you later.”
James Peck, Head of Tech & High Growth Tax, Cooper Parry
Post‑Series B, your funding accelerates global hiring, overseas sales and entity sprawl. That’s where tax risk multiplies – usually outside the line of sight of HMRC or your auditors until a transaction scrutinises every detail.
High‑risk zones we see again and again at CP include:
- Internationalisation & “work from anywhere”
People quietly working from Spain, the US, Poland or the UAE for example can create permanent establishment exposure, payroll obligations and compliance headaches. A handful abroad isn’t a deal‑breaker; dozens without a policy or structure is a minefield. - Transfer pricing
Inter‑company flows not formalised or evidenced? Expect challenge. You need the policy, the documentation, and the data to back it up. - Tax residency & central management and control
Board location vs. incorporation can clash across jurisdictions. With no treaty tie‑breaker (e.g., UK/US in certain cases), you can end up in Mutual Agreement Procedure (MAP) – slow, costly, and value‑sapping – with migration exit charges lurking if you need to unwind. - IP & contract migration
Shifting IP or customer contracts cross‑border without planning can trigger deemed disposals and unexpected tax bills. If a buyer asserts your IP is worth $20m, for example, it’s up to you to disprove it. That’s why it’s important to have documentation prepared first, not during diligence. - R&D claims
Poorly evidenced R&D (no timesheets, unclear project boundaries, staff turnover wiping institutional memory) can be a deal killer. HMRC challenges can stretch back years; penalties and interest can double the pain.
Actions to take
- Define a Tax Agenda: owners, timelines, and the documentation you’ll need to be “data‑room ready.”
- Implement a global mobility policy and entity/PE decision tree for remote workers; audit where people actually are.
- Refresh transfer pricing: inter‑company agreements, benchmarking.
- Lock down board governance & residency evidence (board minutes, where strategic decisions occur).
- R&D hygiene: split R from D, enforce timesheets, align projects to qualifying criteria, and maintain a persistent evidence pack.
FINANCIALS: ROBUST NUMBERS WIN THE DAY
“ARR drives valuation in many high‑growth businesses. Get it robust. Then get smart about how you present run-rate.”
Timothy Mahapatra
Later‑stage diligence is unforgiving on data quality. Two areas separate the prepared from the punished: revenue recognition and ARR quality.
Accruals over cash
It’s astonishing how many sizeable companies roll into diligence with cash accounting for subscription revenue. Fixing this late invites re‑statement risk and undermines credibility. Move to accrual accounting now, align with revenue recognition policies, and build audit‑ready reconciliations.
ARR: opportunity and risk
- Define ARR tightly: what’s truly recurring? Scrutinise one‑off services, set‑up fees, contingent/usage elements, stepped pricing, and partial billing.
- Run‑rate bridge: you can (and should) bridge from historicals to run‑rate where you’ve signed multi‑month deals that haven’t fully flowed into revenue yet. If it’s contracted and defensible, bring it into the story with a clear audit trail.
- 20–30% uplift isn’t unusual when management rebuilds ARR properly, but expect aggressive buy‑side challenge and prepare evidence accordingly.
R&D capitalisation: split the “R” from the “D”
Capitalise what genuinely builds future value and gather evidence around:
- What projects? What phase? What people? Hours tracked?
- Consistency over time (so your back‑cast is supportable).
- If you’re shifting policy to lift EBITDA, ensure you can reconstruct prior periods credibly. Without that, auditors and buyers won’t buy it.
Actions to take
- Convert any remaining cash‑based revenue to accrual accounting. Document policies and build reconciliations from bookings → billings → revenue → cash.
- Create an ARR data pack: definitions, inclusions/exclusions, logo changes, upsell/cross‑sell, churn cohorts, and a transparent run‑rate bridge.
- Implement time recording across engineering and product; map hours to projects and capitalisation rules with sign‑offs.
- Build a single-source Excel pack that can drop straight into the data room—versioned, owned, and locked.
VENDOR ASSIST VS. VENDOR DUE DILIGENCE (VDD): WHAT’S THE DIFFERENCE?
“VDD lets you control the narrative and compress buy‑side top‑ups – especially with multiple bidders.”
Timothy Mahapatra
Vendor Assist is collaborative prep work alongside management to shape the numbers, narrative and pack. It’s powerful 18–24 months out, and it gets you on the front foot.
Vendor Due Diligence (VDD) is different: the report is addressed to buyers. It’s deeper, signed by accountants, and designed so bidders can rely on it. In a competitive process with several bidders, VDD is often a no‑brainer: it reduces duplicative buyer diligence, accelerates the process, and keeps your message consistent.
Timing tip: Processes are longer now. ~9 months is a sensible working assumption. Anchor your date and stick to it. Plan a 6‑month trading update (a focused “top‑up” that captures value uplift across KPIs and forecasts). Don’t let the transaction distract you from hitting monthly numbers – missed forecasts can pave the way for price chips.
Actions to take
- If you’re 6–9 months from market, scope VDD (financial + tax) and align with legal and commercial workstreams.
- Build a top‑up cadence: what gets refreshed, when, and by whom (KPIs, ARR, pipeline, headcount, cash, covenant headroom).
- Lock a communications plan for bidders: consistent numbers, consistent story, controlled access.
WORKING CAPITAL, DEFERRED TAX & LOSSES: THE HIDDEN VALUE
In the exit window, look hard at working capital mechanisms and any deferred tax positions. Losses can be an asset, but expect challenge. If you can show a liability won’t crystallise, or a loss position has realisable value, that’s negotiating capital. Conversely, weak recognition policies or unexplained movements invite reductions to consideration or harsher terms.
Actions to take
- Run a working capital study (seasonality, outliers, normalisation). Be ready to defend the target level.
- Review deferred tax recognition and documentation; understand the buyer’s likely adjustments.
- Prepare position papers: why this liability shouldn’t crystalise; why these losses have value; what assumptions underpin both.
INCENTIVES: DON’T FALL INTO THE ‘TAX & EMOTIONS’ TRAP
“Too many ‘EMIs’ aren’t EMIs. When buyers reclassify gains as income, your key people take a 50% tax hit, and your earn‑out suffers.”
James Peck
Option schemes can cause disproportionate pain because they collide with people’s expectations. If your EMI plan wasn’t implemented properly (independence tests, eligibility, valuations, notifications, documentation), it risks being treated as unapproved, flipping expected CGT at 10–14% into income tax / PAYE up to ~50%.
That’s how you alienate your best people in the period you need them most to hit earn‑out milestones.
Once heads of terms are signed, there’s usually no time to fix this pre‑deal. You can sweeten post‑acquisition (e.g., sweet equity), but it’s rarely a true replacement for the lost upside.
Actions to take
- Commission an option scheme review (EMI/CSOP/other): eligibility, independence, valuation basis, grant docs, HMRC notifications, and cap table integrity.
- Where you need to re‑incentivise pre‑deal, do it early so there’s real growth between grant and exit.
- For post‑deal, model gross‑up costs if you need to compensate key individuals; bake that into your negotiation strategy.
- Get top‑tier legal advice on incentive plan drafting – especially definitions (EBITDA, revenue, ARR) to avoid ambiguity and dispute.
PROCESS DISCIPLINE: DATES, UPDATES, DELIVERY
“Anchor your date. Stick to it. Don’t get distracted. Hit your numbers every month.”
Timothy Mahapatra
Modern processes are more scrutinised and more complex. The winning mindset includes:
- A single version of truth across finance, tax, legal, and commercial.
- Clear owners for every data room folder, with risks logged, mitigations in motion and blockers escalated.
- No surprises: align forecasts, pipeline hygiene, and hiring plans – then deliver against them.
Actions to take
- Create a risk register for each high‑impact item (ARR definitions, R&D evidence, transfer pricing, residency, options).
- Schedule a mock Q&A with an “aggressive buyer” mindset. Practice the answers, test the evidence.
LOOKING FOR TAILORED ADVICE TO GET DD-READY?
CP Deals and our Tech & High Growth team have helped hundreds of companies to get DD-ready post-Series B.
From vendor assist to full VDD, tax agenda to ARR reconstruction, we can help you pre-empt the buyer or investor’s questions, tighten the numbers and control the narrative.
Get in touch today to find out more.
