The VC Fund Checklist: What LPs Look for Before Investing
Inside the mind of an LP: What makes me say 'yes' and what makes me walk away
There are five main areas to diligence when investing in a new fund:
Track record
Thesis
Team
Co-investments
Terms
TL;DR Mind Map
🚀 Track Record
VC is an outlier asset class—look for GPs who can consistently find the needle in the haystack. IRR, TVPI, and DPI are assessed together, not in isolation. Here, it’s all about a GP’s understanding of and ability to execute against the power law.
Each partner must be evaluated individually—what’s their best deal, their average deal, and how many have been written off? Look at how LPs, founders, co-investors, and the broader market perceive them. If it’s a first-time fund, reference-check former colleagues.
We back emerging managers, not first-time investors. (One caveat—I’ll explain our newly launched micro VC bucket soon.) Clear evidence of sourcing, supporting scale, and exiting companies must be seen. If exits haven’t happened yet, dig into portfolio metrics to evaluate the value and don’t just take the last round’s price at face value.
🤓 Thesis
I prefer sector-specific funds over generalists. The best emerging managers become known for something early—it makes them stand out, attract founders, and build credibility. I see this most often done through a specialised thesis.
We back funds typically under $100M (pre-seed/seed) or $200M (seed/A). It’s where the alpha is —both in performance data and portfolio construction math. See ‘Bigger Funds, Bigger Problems: The Flawed Math of Venture at Scale’.
Fund size matters more than vintage. Last year, we backed both a $40M Fund I and a $70M Fund VII—the two strategies and math made sense. We do mark down funds that aggressively scale fund size; growing too fast changes your role in the cap table and introduces execution risk in the strategy. Alignments also take a backlash.
Portfolio construction is important. We’ve backed highly concentrated portfolios (15 companies) and much larger ones (hundreds). The data increasingly shows that concentrated portfolios have an advantage when underwriting venture risk and possible returns.
A large portfolio may be more likely to return capital to investors, but multiples of the fund become more challenging without material ownership. The more material the LP, the more likely the investor is going to assess their ownership in the underlying portfolio companies.
🙏 Co-Investments
Co-investments are a core part of how we work with VCs, and we often use co-investments to test relationships with fund managers before making a commitment. Not every VC can offer co-investments—some sectors, like life sciences, bring inherent challenges.
A big part of our strategy is leveraging information as alpha—being a material LP, tracking the top-performing companies, and doubling down on Series B+ winners. Look for high-quality deal flow, a structured process, and clear visibility upfront.
When GPs bring co-investment opportunities, it’s good practice to see underwriting and an understanding of the quantitative assessment of the business. By Series B+, the assessment has changed from qualitative to quantitative, and an objective view is necessary.
Ideally, we’ve already been tracking the company alongside the GP, so when the round moves fast—as it inevitably does—we’re ready to act. For new and prospective relationships, this can be harder. We don’t have deep insight into their portfolio data; the bar is higher, and we need more time to evaluate the opportunity.
💃 People
VC is the most people-driven asset class; back GPs that founders are genuinely excited to work with. The best emerging managers share key traits:
A deep, differentiated network—they’re known for something, and top founders & VCs seek them out. They have an audience—they share useful insights and amplify their portfolio companies. Put simply - they can source. If they can’t, there will always be a ceiling to their performance.
Great pickers—even tier-one VCs get it wrong 70% of the time. However, the job is to understand the characteristics of a venture-backable business and its scale. Pattern recognition is key and can come from a combination of operational and investment backgrounds. Without it, GPs are simply relying on luck.
A structured approach—there’s a clear system for sourcing, investing, and adding value. The strategy is disciplined—they stay focused and double down on what they do best.
Evaluating team dynamics is essential—succession planning, GP splits, and carry allocation. Is there long-term alignment? Do they actually want to work together?
Every firm, no matter its size, has key person risk. Whether it’s a solo GP or a multi-person partnership, one person generally defines the firm. The key is ensuring that all partners are seen as value-add by founders.
This is the area that has evolved for me the most. Early-stage venture is a qualitative game—people over numbers. Founders don’t care about the firm’s brand; they care about the individual person investing in them. Assessing the team is where I spend most of my investment decision-making time.
💰 Terms
The GP/LP relationship lasts longer than the average marriage—so terms matter. The 2/20 model is the world's second most lucrative business model after Google’s, so don’t fix what isn’t broken. If a GP wants higher fees or ratchets, a ceiling needs to be surpassed. The overwhelming majority don’t reach this ceiling. High-profile funds such as USV have stuck to the 2/20 model, and so should everyone.
GP commitment is all about context. A $10M GP commit in a $100M fund sounds impressive—until understanding the GP is worth $10B. Meanwhile, if a GP puts up 2% but it’s a significant part of their net worth, that’s actual alignment.
Weighting
You wouldn’t buy a house without getting a survey. You wouldn’t hire someone without checking their references. A new relationship between a GP and LP can take a year to build, and the touchpoints matter.
Every LP has a different risk appetite and deployment strategy. Think of the five areas totalling a score of 100. If each section weighs precisely the same in an LP’s eyes, each is marked out of 20. Often, some sections outweigh others; I have more weight on the team and track record than co-investments and terms.
The key to an efficient fundraise is understanding the various areas and how much influence each plays in an LP’s investment decision.
Good luck out there.