The $18M Due Diligence Failure

Led acquisition of renewable energy company for corporate client. Target had compelling technology and strong revenue growth.

Target company: $25M revenue, growing 60% annually, revolutionary solar panel efficiency technology. Asking price: $80M. Client wanted to enter renewable energy space quickly. I led due diligence team. We verified revenue, margins, customer contracts—all checked out. We interviewed management, toured facilities, reviewed patents. Everything looked great. Deal closed in 90 days. What we missed: customer concentration. The company's "diversified" revenue was actually 75% from 3 customers who were all funded by one Chinese conglomerate.

Six months post-acquisition, the Chinese conglomerate hit financial trouble. All three customers canceled orders simultaneously. Revenue dropped from $25M to $6M in one quarter. The "revolutionary technology" was real, but customer adoption required heavy subsidies that only existed in one market. We tried to pivot to new markets, but the technology wasn't cost-competitive without subsidies. Spent $12M trying to save it. Eventually sold the technology for $8M. Total loss: $18M after all costs.

• Build customer concentration matrix—not just number of customers, but ultimate payment sources
• Interview at least 50% of revenue-generating customers, not just top 3
• Map entire value chain—who funds the customers' customers
• Red flag any business with >50% revenue tied to single economic actor
• Require technology validation in 3+ independent markets before betting on scalability
• Extend due diligence timelines by 30% when entering new industry