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Limited partner due diligence on VC 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 our firm to keep in line with their expectations. I’ve listed below some of the tools we use to self-assess, from a limited partner point of view:

For private equity funds in general:

For VC funds:

The biggest risk for many VC and private equity funds is team risk.  I wrote a little while ago about how to assess this:

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.

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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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