The Other Diligence

When you back a management team, you run a diligence process on the chief executive. Maybe ghSMART, maybe Russell Reynolds, maybe your own work and a few backchannel calls. You come away with a view: can this person run the plan. That view is usually good. It is also private. It lives in your files and your investment committee memo.

The people who set the price of your company never see it.

A second diligence process runs on your chief executive whether you commission it or not. A strategic acquirer runs it. So does a lender, a co-investor, an LP, and every senior operator deciding whether to join your company. They do not get your assessment. They get whatever they can find. A search result. A stale profile. A panel from two companies ago. A quote that fits a strategy you have since abandoned. They assemble a chief executive out of public fragments, and the one they assemble is the one that gets priced.

Call it the other diligence. It is the one you do not run, and nobody on the deal owns it.

Nobody owns it

Look at what you already pay for. You run leadership diligence at entry. You prep the chief executive for the board. You spend real money and real hours making sure that person can perform. All of it points inward, at capability. None of it touches how that capability reads to someone underwriting a check from the outside.

The market that serves this is not built for you either. Public relations places stories, and a story is an output, not a position. Branding makes a chief executive look polished without making them legible to a buyer. Corporate communications manages the company message, which is a different message. The assessment firms go deep on whether a leader is capable and stop precisely where the other diligence begins. Each of them solves a real problem. None of them owns this one.

So it drifts. There is no baseline at entry, no standard applied the same way twice, and no record of whether the position strengthened or decayed across the hold. Every other input that touches your exit multiple has an owner, a number, and a review. This one has an impression.

Not that the other diligence is unmanaged because it does not matter. It is unmanaged because it has never had a unit of measurement.

Where it costs most

Picture a strong operator, two years into the hold, hitting plan, well regarded around the board. The bank runs the process. A corporate development team at the strategic opens diligence, and an analyst does what analysts do first. They search the chief executive. The first page is thin. An old bio, nothing the executive has said about where this business is going. The analyst does not decide the leader is weak. They decide there is nothing there, and they carry a quiet question into the model.

The obvious objection is that buyers do not price a chief executive off a search engine. They run management presentations, expert calls, and references. A corporate development team will spend hours in a room with your CEO before a bid firms up. That is true. It also misses when the search happens. The search happens first. It runs before the meeting is booked, and it shapes who gets invited into the process, with what prior, and what the room is trying to confirm once everyone sits down. By the time your chief executive walks in, the buyer is not forming a view. They are testing one. First impressions anchor, and the anchor was set by whatever the first page returned.

So what does the quiet question cost. We cannot tell you, and neither can anyone else, because nobody has measured it. That is not a hedge. It is the reason this firm exists.

What you can do is the arithmetic. Take a portfolio company with $400 million of equity value. If a buyer holds back five percent to cover a doubt they could not resolve, that is $20 million. We are not claiming five percent is the number. We are claiming that nobody knows what the number is, that it is not zero, and that you are carrying it in every process you run. It sits in no value-creation plan. It never appears as a line item, because it was never measured going in. It arrives as a softer bid, and everyone blames the market.

What is established is the surrounding shape. More than seventy percent of chief executives at private-capital-backed companies are replaced across a single hold.¹ When that turnover is unplanned it lengthens the hold in roughly four of five cases.² Leadership is already priced. The other diligence is the part of it left unmeasured.

You ran a diligence process on the chief executive. So did the buyer. You were both right. Only one of you set the price.

Why now

This was survivable for a long time. When multiples were climbing and debt was cheap, a soft bid still cleared, because the next turn of financial engineering covered the difference. That cover is gone. A buyout that once needed about five percent annual earnings growth to clear a 2.5x return now needs closer to twelve.³ Distributions to limited partners have sat below fifteen percent of net asset value for four straight years.³ Cash returned, not paper marks, is now the number that decides whether a firm raises its next fund.

The pressure is concrete enough that sponsors are accepting lower exit valuations to generate the realized returns their next raise depends on.⁴ Even the largest credit managers have capped how fast their own investors can pull money out.⁵ The system is reaching for liquidity at once.

Read that against your exit and the math turns. If you may be selling into a market that is already discounting you, and selling partly to put cash on the board, then every point a buyer shaves to cover a doubt is a point you can no longer wave off. And the market is telling you where it pays up: operational capability rather than financial structure.⁶ A chief executive who reads as in command is part of that capability. One the market cannot see is part of the discount.

It runs the whole hold

The exit is only where the cost is easiest to see. The other diligence is running the entire time you own the company, and the clearest place to watch it work is talent.

When you recruit a senior operator into a portfolio company, a divisional head, a chief revenue officer, a successor chief executive, that person runs their own diligence before they say yes. The first thing they check is the leader they would report to. And unlike the buyer, they will never sit in a room with your chief executive before deciding. They have only the public record. A leader with nothing findable, or a profile two jobs out of date, reads as risk. You lose the candidate to a competing offer, or you pay up to offset a doubt you created for free. Every strong hire you fail to land is compounding damage to the plan that hire was supposed to deliver.

The same process sets the terms at the start. A new chief executive arrives, and the first ninety days quietly decide whether the market files them as the leader of this company or the person who used to run the last one. Nobody manages that handoff, so the previous position lingers into the hold you are paying for now. And every capital event along the way, a refinancing, a bolt-on, a minority sale, is priced by people running the same search the exit buyer will run. A gap you ignore in year two is a gap you have paid for three times before you reach the sale.

We built Pollinaite to run the other diligence before the buyer does, and to manage what it finds the way you already manage capability. To score it against a fixed standard, tie that score to the capital outcome it moves, and work it on purpose across the hold instead of discovering it in a data room. We sell a standard, not an opinion.

The honest state of this field is that the standard does not exist yet. That is what we are building. The Pollinaite V.A.L.U.E. Index™ will measure the other diligence across private capital and publish what it finds, with the methodology in the open. This note is the argument for why it should exist. The number is what comes next.

Until then, run the search. It costs nothing, and it tells you exactly where you stand.

Sources and method

This note draws on public research and on Pollinaite's analytical framework. It contains no client data. Where a figure is an illustration rather than a finding, it is labelled as such in the text.

1. Heidrick & Struggles, research on chief executive turnover at private-capital-backed companies. More than seventy percent of chief executives are replaced across a single hold period.
2. AlixPartners and Vardis, annual private equity leadership survey. Unplanned chief executive turnover lengthened the hold period in roughly eighty-two percent of cases reported.
3. Bain & Company, Global Private Equity Report 2026. Required annual EBITDA growth to clear a 2.5x return has moved from approximately five percent to approximately twelve percent. Distributions to limited partners have remained below fifteen percent of net asset value for four consecutive years.
4. PwC, private equity market commentary, 2026. Sponsors reported accepting lower exit valuations in order to generate realized distributions ahead of subsequent fundraises.
5. Reported publicly in June 2026, several of the largest private credit managers limited investor redemptions in their semi-liquid vehicles after withdrawal requests exceeded quarterly capacity.
6. Allianz Global Investors, private markets outlook 2026. Returns are increasingly attributed to operational capability rather than financial structure.

On the $400 million example: the equity value and the five percent adjustment are illustrative, not measured. No published study establishes what a chief executive's public position is worth at exit in mid-market private capital. That absence is the reason the Pollinaite V.A.L.U.E. Index™ is being built. When it publishes, its methodology will be public and its findings will replace the arithmetic above.