The 9 Point Due Diligence Checklist for Fund Investments

1. Team

  • Who is on the team? What are their backgrounds?
  • Number of founding members or general partners? Tenure together? What is the split percentage of ownership across the team?
  • Talent for finding compelling companies? Do they often access stellar deals?
  • Interpersonal dynamics?
  • Is the team from a cold or warm referral?

2. Investment Thesis

  • What is the team’s unfair competitive advantage? How will they understand/access/own companies better than others?
  • How big is the sector/market of focus? Is the market growing or largely untapped?
  • Can the model support top quartile returns?
  • Is there an opportunity to scale?

3. Performance

  • Do they have an alternative demonstration of investment ability, if a “conventional” track record is not available? For example, non-traditional investing background, prior angel investments, a foundry fund, an advisory share portfolio, a fund zero?
  • How do they illustrate diversity of intellect?
  • Are they able to mitigate the influence of “group think”?

4. Case Studies

  • How did they get into the deal? What was the source?
  • Date invested/involved? Ownership?
  • Why did they participate?
  • Are they planning to invest again in the next round?
  • What are the next milestones?
  • Any top quality co-investors?

5. Fund Model

  • What stage of companies are they investing in? (e.g., pre-seed, seed, Series A/B, early-stage, late-stage, growth, etc.)
  • What sectors, geographies, and classifications are they investing in? (e.g., B2B, consumer, hardware, deep tech, generalist, impact, etc.)
  • What check sizes are they writing? Any maximum allocations by sector?
  • What is the size of their fund?
  • How many deals have they done in the last year?
  • What is their deployment timeline? (e.g., 3yr, 4yr) What is their ROI timeline?
  • Do they hold capital reserves? How much?

6. Deals / Sourcing

  • How are deals sourced? How are they tracked?
  • Do they exhibit nimble access into deals?
  • What best-in-class networks do they leverage, if any?
  • How are investment decisions made? Who and how many people are involved? Who has final say? Is there an investment committee?
  • What resources do they provide to their portfolio companies beyond capital?
  • Do they participate in opportunistic deals?

7. Ownership / Pro Rata

  • Do they have pro rata ownership rights, which are the right, but not the obligation, to invest in future funding rounds? What percentage?
  • Are they valuation sensitive for deals? Do they have a valuation range? How so?
  • How will they handle SPVs (special purpose vehicles)? Have they done them previously?
  • How do they coalesce other investors for SPVs? Do any other specific investors have priority in SPVs?

8. Structure

  • What is their fee structure? Management fee? Carry fee?
  • What are fees on additional deals, such as SPVs (special purpose vehicles)?
  • What is their capital call schedule?

9. Purpose

  • Is the team planning for longevity? Or does the firm cease to exist if the founding team leaves?
  • Does this opportunity have an overlooked protagonist with a significant stake? Does this team have a woman, person of color, or LGBTQ+ leader?
  • Is the team coachable? Forthcoming with information? Any red flags or obnoxious behavior of concern?
  • How often will you be updated on their performance as an investor?
  • Is the team doing something truly unique?

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Kaego Ogbechie Rust

Kaego Ogbechie Rust

224 Followers

CEO at KHOR Consulting, helping companies build business plans, pitch decks, and streamline their operations. Email: kaego@khorconsulting.com