Growth Equity AI: Unit Economics Diligence, TAM Sizing & Scaling

Growth Equity Sits Between VC and Buyout — and So Does the Diligence

Growth equity occupies a specific space: companies with proven product-market fit and real, often already-profitable revenue — not the binary survival risk of early-stage VC, and not the mature, stable cash flow that supports the leverage a traditional buyout uses. Most growth equity deals use little to no debt; the return case rests on the company continuing to grow into a large market, not on financial engineering. That changes what actually matters in diligence: less "will this company survive," less "how much debt can it service," more "is this growth rate durable and repeatable, and how big can this actually get." Claude's most useful role here is compressing the volume of unit-economics and market-sizing analysis that this specific diligence style requires.

Unit Economics Diligence

The core growth equity diligence question — is this growth efficient and durable — comes down to unit economics, not just the topline growth rate:

• "Evaluate this SaaS company's unit economics for a growth equity investment: CAC $18,000 (blended), ACV $65,000, gross margin 78%, net revenue retention 118%, gross revenue retention 91%, sales cycle 4.5 months. Calculate LTV using a 5-year retention curve, LTV:CAC ratio, and CAC payback period. Is this efficient enough to justify the growth spend, and how does it compare to typical benchmarks for a company at this ACV and segment?"
• "Build a cohort retention analysis from this data [paste monthly cohort revenue table]. What's the actual net revenue retention trend over the last 8 quarters — improving, stable, or deteriorating? Separate the story into gross retention (churn) versus expansion (upsell/cross-sell) — which one is actually driving the NRR number, and what does that imply about how repeatable this growth is?"
• "This company's growth has been 65% YoY, but CAC has risen 40% over the same period and payback period has stretched from 14 to 22 months. Is this a normal maturation pattern (easy customers acquired first, now moving down-market or upmarket into harder segments) or a sign that the efficient growth phase is ending? What data would distinguish those two explanations?"

TAM Sizing and Market Durability

• "Build a bottom-up TAM estimate for a vertical SaaS company selling practice-management software to independent physical therapy clinics: number of PT clinics in the US, average clinic size, realistic ACV at this company's price point, and estimated penetration ceiling given how fragmented or consolidated this buyer base is. Cross-check against a top-down estimate using total US healthcare practice-management software spend and this vertical's share."
• "This company claims a $40B TAM by including three adjacent markets they don't currently sell into. Help me build a more disciplined SAM (serviceable addressable market) estimate based on their actual current product and go-to-market motion, and separately estimate what expansion into each adjacent market would realistically add and over what timeframe — I want to see the credible near-term number and the credible long-term story as two separate figures, not blended into one TAM claim."

Competitive Landscape and Durability of the Moat

• "Map the competitive landscape for a company selling AI-powered contract review software to mid-market legal teams: direct competitors, adjacent players (legal ops platforms adding contract review, general-purpose AI tools that could do this natively), and the switching costs that would make a customer sticky versus easy to displace. What's the realistic 3-year competitive risk — is this a defensible category or a feature that gets commoditized?"
• "Given this company's win/loss data against its top 3 competitors [paste], what's actually driving wins — price, product capability, or sales execution? And what's driving losses? I want to know whether the company's growth is coming from a genuinely differentiated product or from being early in a category that will get more competitive."

Structuring: Minority Investment, Not a Buyout

Growth equity structures differ meaningfully from buyout LBOs — usually a minority stake, often preferred equity with a liquidation preference rather than common, board representation rather than full control, and protective provisions rather than operational control rights:

• "Explain the difference between a straight preferred structure (1x non-participating liquidation preference) and a participating preferred structure for a $30M growth equity investment at a $150M pre-money valuation. Model the payout to our fund under three exit scenarios ($100M, $300M, $600M exit) under each structure, and explain which structure we'd prefer and why given this company's growth trajectory and risk profile."
• "Draft the key terms we should negotiate for a minority growth investment beyond price: board seat vs. board observer rights, protective provisions (what actions require our consent), information rights, and pro-rata rights on future rounds. What's market-standard for a $25-40M growth check at this stage, and what would be considered aggressive on either side?"

Portfolio Company Scaling Support

• "A portfolio company is trying to figure out international expansion — UK first, or start with a larger market like Germany? Help me think through the framework: market size, competitive intensity, regulatory/localization burden, and whether their current product and pricing model translates without major rework. What data would I want from the company before forming a view?"
• "Build a board-level KPI dashboard structure for a growth equity portfolio company: ARR growth, net revenue retention, CAC payback, burn multiple (net burn / net new ARR), and runway. For each metric, what's the threshold that should trigger a real conversation about the growth plan versus normal quarter-to-quarter noise?"

Recommended MCP Setup

Growth equity diligence leans heavily on public company comparables (for market sizing and multiples context) and SEC filings when evaluating companies with public competitors — connect the SEC EDGAR MCP server for that, alongside general market data tools for comp sets.

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