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Limited Partner Due Diligence on Venture Capital and Private Equity Funds

PUBLIC WORKS DEPARTMENT EMPLOYEES INSPECT THE ...

As a VC, I have a standard due diligence list for companies I’m reviewing.  Similarly, our limited partner investors have their own due diligence standards, and we manage HOF Capital to keep in line with their standards and expectations.

The biggest risk for many VC and private equity funds is team risk.  I wrote a little while ago about how to assess this:
– For assessing any organization: Ready to Join a New Management Team? Here’s How to Do Your Due Diligence First
– Specifically if you’re in the process of joining a fund: How to Negotiate a Partner Role at a Venture Capital or Private Equity Firm

I suggest that if you’re looking to invest in a VC, it’s particularly helpful to evaluate team dynamics by separating the team.  First, interview management together, in order to monitor their body language and who addresses which part of the business. Then interview them separately, one on one. This allows you to verify if you are hearing the same message from everyone.

I also suggest ask each person at the firm about their firm’s plans and their individual career path prospectively; everyone should have a clear vision of their future with the firm.  Ask on what KPIs each Partner is evaluated. This will give you a clear view of how effectively the firm is managed.

I’ve listed below some of the tools we use to self-assess, from a limited partner point of view:

Institutional Limited Partners Association (ILPA) Due Diligence Checklist

DUE DILIGENCE ON VENTURE CAPITAL FUNDS

9 Point Checklist Before Investing in an Angel (or VC) Fund

Ask an Investor: How do I perform due diligence on a VC?

How LPs Conduct Due Diligence on Venture Capital Firms

 

DUE DILIGENCE ON PRIVATE EQUITY FUNDS

Private Equity Fund Investment Due Diligence

Manager Due Diligence: Searching for Alpha in Private Equity

Key Due Diligence Considerations for Private Equity Investors

 

Photo: PUBLIC WORKS DEPARTMENT EMPLOYEES INSPECT THE EXHAUST SYSTEM FOR VISIBLE LEAKS AT AN AUTO EMISSION INSPECTION STATION… – NARA – 557853 (Photo credit: Wikipedia)

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