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Start by defining what you are evaluating
A venture capital fund is a private investment vehicle, but not every private-equity fund is a venture fund. The SEC’s Investor.gov guidance describes private-equity funds broadly and notes that some invest in minority stakes in fast-growing companies or startups. That is category context, not a description or endorsement of any particular fund.
Before comparing managers, write down what role this commitment would play in your portfolio and what you can afford to have unavailable for an extended period. Private-fund interests commonly restrict withdrawals, and investors may wait years before realizing returns. The fund’s actual documents govern its term, extensions, capital calls, transfers, and distributions; do not assume you can redeem on demand.
Build a consistent diligence file
Ask each manager for the same core materials and use the same definitions when comparing funds. The fund’s documents, not a verbal summary, are the basis for understanding its rights, obligations, costs, and restrictions.
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- Offering materials: the private placement memorandum or equivalent offering document.
- Governing and subscription documents: the limited partnership agreement, subscription agreement, and any other agreement setting investor obligations or rights.
- Investor-specific terms: relevant side letters and an explanation of any preferential arrangements or differing rights.
- Performance support: cash-flow information, valuation definitions, and a clear separation of realized from unrealized results.
- Operations and reporting: audited financial statements, sample investor reports, valuation policies, and information about the administrator, auditor, and other key service providers.
- Regulatory disclosures: the adviser’s Form ADV and any explanation needed to reconcile it with the pitch and fund documents.
ILPA’s standardized due diligence questionnaire can help organize questions about the firm and fund. ILPA cautions that the questionnaire may not fit every fund and should not be the sole basis for an investment decision.
Test whether the strategy is specific and executable
Ask the GP to describe the fund’s investment thesis in terms that can be checked against actual investments and portfolio construction. A broad claim such as “we back exceptional founders” is not enough to show how the fund will build a portfolio.
Clarify the intended portfolio
- Which stages, sectors, and geographies are in scope, and which are out of scope?
- What are the expected initial check sizes, ownership targets, number of companies, and investment pace?
- How much capital is planned for follow-on investments, and what conditions determine whether a company receives more capital?
- What concentration limits or other portfolio construction constraints apply?
Connect the thesis to decisions
Ask for examples of how the stated thesis shaped actual investments, follow-on decisions, and exits. Ask what would cause the team to pass on an opportunity or stop investing in a portfolio company. Compare the answers with the offering materials and the portfolio the manager presents. The SEC’s broad private-equity guidance does not establish a universal scoring model for venture strategies, so assess the logic and evidence of the individual fund rather than applying an invented industry pass mark.
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Assess the team, continuity, and performance evidence
Fund results are meaningful only when you understand who generated them, what they did, and how the figures were calculated. Request a deal-by-deal account of prior funds and ask who sourced, led, approved, and monitored each investment. Establish which of those people will have comparable responsibilities in the fund you are considering.
- How are results attributed among the GP, other investors, and market conditions?
- Which results are realized, and which rely on valuations of holdings that have not been sold?
- What cash-flow and valuation definitions support the performance figures?
- Have team members departed, changed roles, or divided responsibilities? What succession arrangements apply?
- Who has investment committee authority, and what happens if a key person leaves?
- What personal commitment is being made by the investment team, and how is it structured?
Do not combine realized proceeds and unrealized valuations without understanding the distinction. Ask for the underlying support rather than relying on a headline multiple or projected return. The available sources do not establish a single validated VC attribution method or universal performance threshold; compare funds only when their definitions and periods are sufficiently clear and consistent.
Read the terms that determine duration, control, and liquidity
Review the limited partnership agreement and subscription documents closely, with qualified private-fund counsel where appropriate. The SEC’s investor guidance emphasizes that offering documents and agreements govern material information, fees, expenses, and terms over the fund’s life.
- Duration: the fund term, extension rights, investment period, and circumstances in which the fund may continue operating.
- Capital calls: notice requirements, payment deadlines, and consequences of failing to meet a capital call.
- Transfers and withdrawals: restrictions on transferring an interest and whether any withdrawal right exists.
- Distributions: the distribution waterfall, timing provisions, and any recycling of proceeds into new investments.
- Governance: key-person provisions, GP removal provisions, advisory committee powers, and what happens if the fund cannot make further investments.
- Investor differences: side letters, preferential terms, and how differing investor rights affect the fund and other LPs.
These are items to inspect, not assumptions about what any particular agreement contains. Ask the manager to explain how each provision works in realistic scenarios, then verify the explanation against the contract language.
Calculate the full economic burden and examine conflicts
Request a complete schedule of costs borne by the fund, its portfolio companies, and investors. It should explain management fees, fund expenses, portfolio-company charges, offsets, related-party payments, and how any shared costs are allocated. Ask how the fee base or rate changes over the fund’s life if the documents provide for changes.
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Conflicts deserve separate scrutiny. An adviser may manage multiple funds, have relationships with portfolio companies, or use affiliates to provide services. These arrangements can create questions about which fund receives an investment opportunity or bears an expense. Ask the GP to identify conflicts and related-party arrangements, explain its allocation policy, and describe how conflicts are disclosed and handled, including any investor consent process. Compare those answers with the documents and adviser disclosures. Disclosure tells you about a conflict; it does not by itself make the economic arrangement attractive.
Check operations, valuation, and investor reporting
Operational diligence helps you understand how the fund records assets, safeguards information, and communicates with LPs—not just how it selects companies. Request audited financial statements and sample investor reporting, then establish what information will be provided and how often.
- Who is the fund’s auditor and administrator, and what work does each perform?
- What valuation policies govern unrealized investments, and who reviews or approves valuations?
- What will capital account statements and portfolio-company reporting show?
- What cybersecurity, data protection, and business-continuity procedures are in place?
- How are material events, valuation changes, or operational problems communicated to LPs?
The SEC’s overview of private-fund adviser rules describes annual audits and quarterly statements for advisers covered by those rules. Do not assume that every VC adviser or fund has identical obligations: confirm the adviser’s registration and regulatory status and whether a particular rule currently applies to it.
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Use public adviser records as a cross-check
Search for the adviser through the SEC’s Investment Adviser Public Disclosure system (IAPD). Review the available Form ADV information and compare it with the manager’s description of its business, ownership, affiliates, clients, practices, fees, conflicts, and disciplinary history.
Form ADV Part 1 includes information such as business, ownership, client, employee, practice, affiliation, and disciplinary details. Part 2 is a narrative brochure covering practices, fees, conflicts, and disciplinary matters. Filing details vary with regulatory status, so an absent or different filing is not, by itself, a conclusion about fund quality. A public adviser filing does not certify projected returns or make every fund document public. Form PF information is non-public.
Compare candidate funds on the same basis
If you are assessing more than one fund, keep a comparison record with a consistent definition for every entry. Do not rank funds on a figure whose meaning differs between managers.
| Comparison area | What to record |
|---|---|
| Strategy and portfolio construction | Stages, sectors, geography, check sizes, target ownership, portfolio count, reserves, pace, and concentration approach |
| Team and continuity | Investment responsibilities, deal attribution, departures, succession, decision authority, and personal commitment |
| Performance evidence | Realized and unrealized results separately, periods covered, cash-flow definitions, valuation policies, and supporting records |
| Term and liquidity | Fund term, extensions, investment period, capital-call rules, transfer restrictions, and distribution provisions |
| Economics | Management fees, fund and portfolio-company expenses, offsets, related-party payments, and allocation method |
| Conflicts and investor rights | Affiliations, opportunity and expense allocation, disclosure and consent processes, side letters, and advisory committee powers |
| Controls and reporting | Audit and administration arrangements, valuation controls, operational safeguards, and LP reporting |
The sources do not provide numeric pass/fail thresholds for these categories. A comparison should expose unanswered questions and trade-offs, not create a false impression of precision.
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Questions to take into a GP meeting
- What is the fund’s strategy, and what investments are outside its scope?
- How many companies do you expect to back, at what initial check sizes, and with how much reserved for follow-ons?
- Who sourced, led, and monitored prior investments, and who will do those jobs in this fund?
- How do you report realized and unrealized performance, and what valuation policies apply to unrealized holdings?
- What are the fund term, extension provisions, capital-call rules, transfer limits, and distribution waterfall?
- Which fees and expenses are borne by the fund, investors, or portfolio companies, and how are offsets calculated?
- How are expenses allocated across related funds and portfolio companies? What affiliate relationships and other conflicts exist?
- Who audits and administers the fund, and what audited statements and investor reports will LPs receive?
- What happens if a key person leaves, the GP is removed, or the fund cannot make further investments?
- Which documents, side letters, or investor rights differ among LPs?
For each answer, note the supporting document, the person responsible, and any unresolved gap. Use an ILPA DDQ as an organizing aid where useful, not as a substitute for independent review of the particular fund.
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