Private Equity After the Reset: From Capital Abundance to Capital Discipline

For a period, it suited everyone to suggest that private equity had decisively moved on from growth at all costs, as though the market had reached a sudden moral conclusion. In reality, nothing so theatrical occurred. The shift began when the cost of capital stopped being abstract and started to shape real underwriting decisions. As rates rose in 2021 and public multiples compressed, private valuations followed. By 2023 most serious funds had already repriced risk, and what had once been tolerated as strategic patience was reclassified as structural weakness.

A Change in Baseline Expectations

By 2026, that adjustment is no longer new. It is embedded in baseline expectations. Profitability is assumed to arrive earlier. Capital consumption is examined with greater scrutiny. Revenue growth on its own carries far less persuasive power than it once did.

The question has therefore evolved. It is no longer enough for a management team to show that losses are narrowing or that a credible path to break-even exists. Almost every portfolio company can now construct that narrative. The more demanding test is whether the underlying economic engine is capable of compounding without continuous external subsidy.

Metrics such as burn multiple, contribution margin per transaction, LTV to CAC ratios and payback periods remain useful and necessary disciplines. They are widely understood and routinely requested, which means they do not in themselves differentiate a business. At best, they indicate that the acute phase of imbalance has passed, but they say little about durability.

Beyond the Dashboard Metrics

The harder questions sit beneath the dashboard:

• As the business scales, do customer cohorts strengthen or flatten once early adopters are exhausted?

• Is margin expansion embedded in the operating model, or largely the product of temporary cost restraint?

• Does incremental growth improve cash generation in a meaningful way, or simply dilute capital more slowly than before?

These distinctions matter because the current consolidation cycle is more selective than many expected.

There are numerous subscale assets with acceptable economics that fall short of being genuinely compelling. Funds are holding assets for longer. Strategic buyers are cautious and deliberate. Exit windows open briefly and on specific terms. Multiple expansion, in this context, cannot be relied upon as a strategy in its own right.

Sustainable enterprise value

Sustainable enterprise value is therefore built less on cosmetic profitability and more on structural alignment between operating performance and valuation logic. Investors are underwriting the persistence of free cash flow rather than the ambition of the revenue curve. Revenue quality, cohort stability and capital intensity now feed directly into how risk is priced, and if those mechanics are fragile, narrative will not compensate for them.

This is where many portfolio conversations remain too high level. Aggregate P&Ls obscure segment-level capital drag. Blended margins conceal weak acquisition cohorts. Growth headlines can distract from the uneven economics that sit beneath them.

From Repair to Resilience

The work that matters is granular and, at times, uncomfortable. It involves isolating segments that absorb disproportionate capital, stress-testing lifetime value assumptions against observed retention behaviour, and re-examining acquisition economics under realistic cost of capital scenarios. It requires tracing how unit economics translate into durable cash generation and where they break down.

Only with that level of clarity can investors and management determine whether a business is structurally investable or merely temporarily stable. The reset happened several years ago, and what remains now is the more exacting task of proving that discipline is not a reaction to market pressure but an embedded feature of the model itself.