Key Takeaways
- Begin with the LP's mandate: A fund should solve a defined allocation need and fit the investor's liquidity, concentration, and governance constraints.
- Ask for evidence behind the manager's edge: Deal examples, pass memos, funnel data, and references are more useful than broad claims about network or access.
- Make the fund mathematics reconcile: Fund size, check sizes, reserves, company count, ownership, dilution, and return assumptions should tell a consistent story.
- Review the institution around the strategy: Terms, alignment, reporting, valuation, service providers, controls, and conflicts all affect the LP experience.
A Public Example
ILPA's Due Diligence Questionnaire is a helpful public model for how institutional LPs organize manager review.
- Diligence is broader than performance: ILPA's framework covers firm, fund, strategy, process, team, governance, conflicts, reporting, ESG, and related monitoring topics.
- The practical lesson: A family office or adviser can scale the depth of review, but the categories should not disappear just because a fund is small or access feels exclusive.
- Useful number: Cambridge Associates describes private investments as typically involving a 10+ year lock-up, so diligence mistakes can remain in the portfolio for a long time.
A disciplined funnel narrows broad manager interest into a small number of evidence-backed commitments. Review sequence only. Stage widths do not represent conversion rates or expected outcomes.
LP Evidence Stack
A disciplined funnel narrows broad manager interest into a small number of evidence-backed commitments.
View chart data and assumptions
| Step | Stage | Review action |
|---|---|---|
| 01 | Strategy | State the investment mandate clearly. |
| 02 | Proof | Ask for evidence behind manager claims. |
| 03 | Terms | Review economics, rights, and conflicts. |
| 04 | Operations | Check reporting, controls, and service providers. |
The checklist below is designed for family offices and institutional LPs reviewing a venture fund, emerging manager, SPV program, or private technology strategy. It is a practical way to organize the diligence conversation, not legal, tax, or investment advice.
1. Mandate Fit
Liquidity baseline: Private investments commonly lock capital for 10 years or more. A diligence memo should model that full period rather than assume the stated maturity is a dependable exit date.
Define what the allocation is expected to contribute before assessing the manager.
- Allocation need: What portfolio problem does this fund solve?
- Strategy fit: Does the mandate align with the LP's stage, geography, sector, currency, and liquidity objectives?
- Existing exposure: How will the fund interact with direct investments, secondaries, co-investments, and other managers?
2. Manager Edge
Outcome dispersion: Carta's 2017-vintage sample showed 4.08x TVPI at the 90th percentile, 2.53x at the 75th percentile, and 1.89x at the median. Evidence of repeatable selection is central to the review.
The manager should explain why it sees attractive opportunities, why founders choose it, and how it selects investments before their potential becomes widely recognized.
- Supporting evidence: Is the claimed edge backed by investment examples, pass memos, and references?
- Team attribution: Does the edge belong to the current team or to a previous platform?
- Durability: Can the advantage persist as the fund and organization grow?
3. Sourcing and Selection
Request funnel data that connects the manager's sourcing claims to actual investment decisions.
- Pipeline: How many opportunities were reviewed and how many reached a first meeting?
- Decision process: What progressed to committee discussion or a term sheet?
- Conversion: Which opportunities became completed investments?
- Attribution: Who sourced each opportunity and helped win the allocation?
Separate deals the manager merely saw from those it could realistically win.
4. Portfolio Construction
Market concentration: In 2025, 487 US megadeals accounted for 67% of total venture value while representing 3.2% of deal count. Look-through exposure can be much more concentrated than company count suggests.
- Deployment plan: Do fund size, check sizes, reserves, and company count reconcile?
- Ownership requirement: What stake is needed for the return case to work after dilution?
- Concentration: How much value must come from the top one, three, and five companies?
- Loss tolerance: How many losses can the fund absorb before returns depend on an unrealistic outlier?
5. Entry Discipline
A strong company can still be a poor investment at the wrong price or with the wrong structure.
- Price: Review the entry valuation and the assumptions that supported it.
- Security: Understand the share class, liquidation preference, and other material terms.
- Ownership: Track the initial stake, expected dilution, and pro rata rights.
- Governance: Identify the rights the fund receives and how it expects to use them.
6. Terms and Alignment
Economic baseline: The median recent venture fund still uses 2% management fees and 20% carried interest. Any departure should be quantified across the complete fund life, not only the investment period.
- GP commitment: What is the amount, who contributes it, and how is it funded?
- Fund economics: How are management fees, carry, expenses, recycling, and offsets structured?
- Allocation practices: How are co-investments, SPVs, warehoused assets, and cross-fund opportunities handled?
- Investor protections: Do key-person, removal, and conflict provisions appropriately protect LPs?
7. Operations and Reporting
Operational diligence tests whether the organization can manage institutional capital and report on it dependably.
- Service providers: Review the administrator, auditor, counsel, and other key providers.
- Controls: Assess bank procedures, cybersecurity, compliance, and separation of duties.
- Valuation: Understand the policy, approval process, and treatment of judgment-based marks.
- Sample reporting: Confirm that an LP can reconcile capital, ownership, fair value, realized proceeds, and material company changes.
8. Liquidity and Risk
Model several cash-flow and liquidity cases rather than relying on the manager's target timeline.
- Capital calls: How quickly could the fund draw commitments?
- Follow-on needs: How much additional capital may be required?
- Exit timing: What happens if realizations arrive later than expected?
- Fund extensions: How would a longer holding period affect the LP?
- Alternative liquidity: What discounts or conflicts could arise through secondary sales or continuation vehicles?
The Final Investment Memo
The memo should make the decision and its limits easy to understand.
- Positive case: What evidence supports making the commitment?
- Reasons to pass: What could make the fund unsuitable?
- Unresolved items: Which questions remain open, and how material are they?
- Decision triggers: What new facts would change the conclusion?
For related reading, see how family offices evaluate venture capital funds and the LP access page.
Adobe-Figma: strong operating metrics did not guarantee an exit
Adobe agreed in September 2022 to acquire Figma for approximately $20 billion in cash and stock. In December 2023, the companies terminated the deal after concluding there was no clear path to regulatory approval.
The consideration was expected to be approximately half cash and half stock.
Adobe also cited net dollar retention above 150% and gross margin near 90%.
The public exit path ended despite the reported operating profile.
What it shows: A fund diligence checklist should test both company underwriting and exit mechanics. Regulatory review, closing conditions, consideration form, termination rights, and timing can change a seemingly visible outcome.
Primary sources: Adobe, proposed Figma acquisition (2022); Adobe and Figma, termination announcement (2023). Public transaction evidence only; this is not represented as a Frontierspace investment or result.
Frequently Asked Questions
What is the most important part of venture fund due diligence?
Short answer: The central task is connecting the manager's claimed edge to evidence: attributable investments, repeatable sourcing, disciplined selection, appropriate fund size, and credible portfolio construction.
What is a common venture fund red flag?
Short answer: A disconnect between the historical track record and the proposed fund is a serious concern, particularly when the team, strategy, ownership targets, or fund size have changed.
Related Reading
Emerging manager due diligence, LP questions for emerging managers, and VC GP commitment.