PE – Software Turnaround Investment Playbook (Cerberus Playbook for Tech)

Software Turnaround Investing Playbook – Translating the Cerberus Investment Approach to Tech

Note – just sharing my own notes

Pre-Deal / Diagnosis

- Financial Stress Test
  - Model churn sensitivity (GRR -5 to -10%)
  - Simulate CAC payback stretch (18 → 36 months)
  - Stress-test debt service under downside ARR scenarios
- Product/Tech Review
  - Identify high-cost modules/features with low ARR contribution
  - Assess scalability of tech stack (cloud cost, infra efficiency, tech debt)
- Org & Talent Check
  - Evaluate leadership capability — CRO, CTO, CFO are common weak links
  - Map key-person risk in engineering and customer success

Capital Restructuring

- Debt/Liquidity
  - Negotiate covenant relief or extend maturities
  - Explore debt-for-equity swaps or preferred equity structures
- Cash Flow Stabilization
  - Drive annual prepay contracts for upfront cash
  - Tighten collections (upfront billing for SMB, stricter enterprise terms)

Early Stabilization (Day 0–90)

- Leadership / Governance
  - Insert interim CRO or CFO to restore control
  - Refresh board with experienced software operators
- Cash & Cost Quick Wins
  - Daily cash reporting + weekly KPI dashboard (ARR, churn, burn, CAC payback)
  - Stop low-ROI marketing campaigns
  - Rationalize SaaS tool/vendor spend

Operational Realignment (3–12 months)

- Product Portfolio
  - Sunset underused SKUs or modules dragging R&D efficiency
  - Consolidate overlapping platforms from prior M&A
  - Focus R&D on high-usage, ARR-driving features
- Engineering Productivity
  - Cut tech debt via structured backlog plan
  - Introduce automation (CI/CD, AI code review, QA bots) to lower cost per feature
- GTM Reset
  - Re-align sales to high-LTV verticals/accounts
  - Reduce paid acquisition with weak ROI
  - Retrain sales on upsell/cross-sell
  - Invest in customer success/renewals (GRR > 90%)

Cost Base Rationalization

- People Costs
  - Right-size headcount, especially G&A and non-core R&D
  - Shift sales comp to more variable structures (cash conserving)
- Cloud & Infrastructure
  - Optimize AWS/Azure contracts (reserved instances, right-sizing)
  - Decommission legacy on-prem systems
- Facilities
  - Shut secondary offices; embrace remote-first where productivity is sustainable
- Vendors & Tools
  - Rationalize SaaS tool stack (often 50–100 overlapping apps)

Governance & Leadership Model

- Weekly operating cadence with cash/KPI dashboards
- Zero-based budgeting to reset cost base
- Empower internal “ops SWAT team” to drive 100-day execution
- Monthly board reviews tied to operational scorecards

Growth & Exit Path (12–24 months)

- Selective Growth Investments
  - Upsell/cross-sell into existing customers
  - Usage-based or premium module pricing
  - Opportunistic tuck-in acquisitions to expand margins/product breadth
- Reputation & Brand Repair
  - Customer communication, NPS rebuild, and product marketing reset
- Exit Options
  - Recap with growth equity once EBITDA positive
  - Strategic sale to consolidator once KPIs reset (GRR > 90%, NRR > 110%, EBITDA breakeven)
  - IPO / secondary if scale and predictability restored

I work in Middle Market Tech PE. My career began as an Investment Banking Analyst at Merrill Lynch in New York, followed by an Investment Associate role at NeoCarta, a tech-focused investment firm. Drawing on my dual background in investing and as a C-Level executive, I focus on building a community, connecting with like-minded industry peers and sharing strategies & best practices for growing PE-backed companies capital-efficiently, helping portfolio companies unlock value, helping our PE firm gain an edge, while maximizing equity value in our portfolio (with the north star of generating alpha & superior risk-adjusted returns for our LPs).