The Cobalt Glacier B2B SaaS due diligence checklist.

The temptation in any acquisition process is to treat diligence as a checkbox. A data room, a few calls with the head of engineering, a quality-of-earnings review, signatures. The temptation gets stronger the closer the parties get to a handshake, because both sides want the deal to happen and nobody wants to be the one asking the question that breaks it.

On a permanent-capital holding period the cost of skipping a question in diligence is measured in decades. We owe the founders we acquire from a process that is honest enough to walk away when it should, and we owe our co-investors a process that does not produce surprises in the years after close. That is why the Cobalt Glacier diligence checklist is longer than most strategic processes and shorter than most private-equity processes — every item earns its place by connecting to a specific decision we have to make.

How permanent-capital diligence differs from a venture or PE process

A venture investor is mostly underwriting an upside scenario. A private-equity buyer is mostly underwriting a five-to-seven-year exit plan. A permanent-capital owner is underwriting a thesis that has to survive every macro environment, every founder transition, and every competitive entrant for the next twenty-five years. The question set is therefore different. We care less about the next twelve months and more about which structural characteristics of the business will still be true in a decade.

We described the underwriting frame in How we underwrite a software acquisition for a 25-year hold. This essay is the operational counterpart: the actual checklist that translates that frame into a process a founder can prepare for.

Diligence is not a search for reasons to close. It is a search for reasons to walk away. Everything else is finance, not diligence.

The six workstreams

Every Cobalt Glacier process is organized into the same six workstreams, run in parallel, with named owners on both sides. We publish the structure to founders early so the process feels legible from the first call.

1. Commercial diligence

The commercial workstream tests the durability of the revenue. It starts with a cohort analysis built from the raw billing data, not the reported summary. We rebuild ARR from the ground up, decompose it into new, expansion, contraction, and churn buckets by cohort, and compare the result to the reported number. Variances above two percent are flagged and walked through with finance.

• Full anonymized customer list with first-billing date, current monthly recurring revenue, renewal date, contract length, and primary product line.
• Pipeline coverage for the next two quarters by stage, with conversion rates by stage for the trailing twelve months.
• Renewal and churn logs for the last three years, including the reason captured at the time and any discount granted to save the account.
• Pricing history, including every list-price change, every standard discount tier, and a sample of executed order forms.

2. Product and engineering diligence

The product workstream answers two questions. First, can the product be operated by a team other than the founding team without degradation. Second, is the underlying architecture honest about its own technical debt. We do not require pristine codebases — they do not exist — but we do require an accurate map of where the bodies are buried and a credible plan to address the consequential ones.

• Architecture overview at the service and data layer, with each component's owner and replacement cost.
• Release cadence and incident history for the last eighteen months.
• Dependency map of third-party services with contract terms, renewal dates, and concentration thresholds.
• Honest technical-debt register, ideally maintained before the process started.

3. Customer diligence

The customer workstream is the one that most reliably surprises both sides of a deal. We ask for permission to speak directly with a representative sample of customers across the cohort spectrum: the oldest accounts, the newest accounts, the largest accounts, the most recent churns, and at least two who churned more than a year ago. Every conversation is anchored on the same five questions, scored independently by two team members, and rolled up into a customer diligence memo before any financial modeling is finalized.

4. Financial diligence

The financial workstream is the most familiar and the least decisive. A standard quality-of-earnings procedure is necessary but not sufficient. What we add on top is a free-cash-flow conversion reconciliation that walks from reported earnings to actual cash, the same reconciliation we wrote about in Free cash flow conversion is the underwriting bar. Businesses that cannot reconcile that bridge cleanly do not clear the process.

5. Legal and governance diligence

The legal workstream looks for the small number of items that can actually break a permanent-capital structure. The big ones are unusual change-of-control provisions in customer contracts, non-standard intellectual-property assignments from early contractors, open-source license obligations that have crept into the production codebase, and any pending or threatened litigation. None of these are common. All of them are deal-blocking when they appear.

6. Operational continuity diligence

The continuity workstream is the one that distinguishes a holdco process from a strategic or financial process. We are buying a business we intend to operate forever, which means we have to understand exactly which humans hold which institutional knowledge and what the plan is for each of them after close. We described the philosophy in Operator continuity is the real asset. The diligence version is a key-person map, a retention package sketch, and an honest conversation about who wants to stay, who wants to advise, and who wants to exit.

What founders should prepare before the first call

The single best predictor of a clean diligence process is whether the founder ran a clean operating cadence before the conversation started. The data exists either way; the question is whether it has been organized into a form somebody other than the founder can read.

• A monthly board package going back at least twenty-four months, even if there is no formal board.
• A current organizational chart with tenure, comp band, and one-line succession notes.
• A clean cap table with all option grants accounted for and any previously promised but unexecuted grants documented.
• A standard order form, a standard MSA, and a list of every non-standard contract executed in the last three years.
• A short, honest written narrative of the three things that worry the founder most about the business. We are going to find them anyway; reading them in the founder's voice changes the tone of the entire process.

The disqualifiers

Most processes that end without a deal end early, in the commercial or customer workstream, for reasons that were visible on the first call but only confirmed in week three. The most common disqualifiers we have seen across recent processes are concentration above twenty-five percent in a single customer, a churn pattern that accelerates rather than decelerates with tenure, a key-person dependency that cannot be resolved with any reasonable retention package, and a quality-of-earnings adjustment that compresses EBITDA by more than fifteen percent.

None of these are moral failings. They are structural mismatches with a permanent-capital holding period. The right outcome in each case is a fast, honest no, delivered with enough specificity that the founder can use the feedback in a different process.

The bottom line

A diligence checklist is not a substitute for judgment; it is a scaffold that lets judgment focus on the items that matter. Run across six workstreams in parallel, scoped to the questions a permanent-capital owner actually has to answer, the checklist compresses a process that would otherwise sprawl across months into one that respects the founder's time and produces a defensible decision either way.

If you are weighing a conversation about a permanent-capital home for the business you have built, we would like to hear from you. The first call is short, the diligence is structured, and the decision either way is delivered with specificity. If you are an operator who has led diligence at scale and wants to embed with a portfolio brand, the Operating Partner program is the door.