Why Most Deals Are Killed Before the Model Ever Matters

Category: Deal Screening
Read Time: ~5 minutes

Most people think deals live or die in the model.

In practice, most lower-middle-market deals are decided long before anyone argues about exit multiples or leverage.

The decision happens earlier — often subconsciously — during screening.

The Hidden Reality of Deal Screening

In real-world private equity, deal screening is not a checklist exercise.
It is a pattern-recognition process under time pressure and incomplete information.

By the time a model is built, the decision is usually already leaning one way.

The model rarely changes that direction.

What Actually Kills Deals Early

Across many transactions, a small set of issues repeatedly surface before modeling:

1. Quality of Earnings Signals

Not the QoE report — the early signs:

• Revenue concentration that feels “explained away”

• EBITDA addbacks that require long narratives

• Margins that only work at peak utilization

Experienced investors sense fragility before it’s quantified.

2. Customer Behavior, Not Customer Count

A CIM may show dozens or hundreds of customers.

What matters more:

• How customers actually find the business

• Whether demand is recurring or episodic

• Whether churn exists but is poorly tracked

These dynamics are often obvious in conversations, not spreadsheets.

3. Management Dependency That Can’t Be Fixed

Founder-driven businesses are common.

What matters is not dependency itself, but whether it is transferable:

• Does the founder control pricing?

• Own customer relationships?

• Personally resolve every escalation?

Some roles can be institutionalized.
Others cannot — regardless of capital.

4. Growth Stories That Require “Everything to Go Right”

The most dangerous deals are not broken ones — they’re fragile optimists.

Red flags include:

• Growth dependent on multiple simultaneous initiatives

• Expansion plans without historical precedent

• Margin expansion tied to “scale” with no proof

Investors rarely articulate this as “too risky.”
They feel it as discomfort.

Why the Model Comes Later

The financial model serves an important role — confirmation, not discovery.

It helps answer:

• “How bad does this get if things slip?”

• “How much margin for error do we have?”

• “What are we actually underwriting?”

But it almost never answers:

• “Should we do this deal at all?”

That question is answered earlier.

The Mistake Early Learners Make

Many students and first-time deal analysts assume:

If I just model better, the answer will be clearer.

In reality:

• Better modeling refines decisions

• Better screening prevents bad ones

Strong investors spend more time killing deals early, not perfecting models for deals that should never advance.

Practical Takeaway

If you want to improve your deal judgment:

• Spend less time optimizing assumptions

• Spend more time interrogating why the business works at all

Ask:

• What must remain true for this to succeed?

• What breaks first if conditions change?

• What is being implicitly assumed but never stated?

Those questions matter more than decimal points.

Closing Thought

Deal screening is not about speed.
It’s about avoiding false confidence.

Most bad deals fail quietly — not because the math was wrong, but because the story was never strong enough to begin with.