This Week's ✨

Emerging Fund Due Diligence: A Practical Guide for Fund of FundsAs LP capital is tightening, investors are becoming more concerned about due diligence. Today, I'm going to share with you a comprehensive framework for reviewing Emerging Funds (I-III), focusing on four key areas:1️⃣ 𝗚𝗼𝘃𝗲𝗿𝗻𝗮𝗻𝗰𝗲 & 𝗢𝘃𝗲𝗿𝘀𝗶𝗴𝗵𝘁2️⃣ 𝗘𝗰𝗼𝗻𝗼𝗺𝗶𝗰 & 𝗧𝗮𝘅 𝗧𝗲𝗿𝗺𝘀3️⃣ 𝗥𝗲𝗴𝘂𝗹𝗮𝘁𝗼𝗿𝘆 𝗖𝗼𝗺𝗽𝗹𝗶𝗮𝗻𝗰𝗲4️⃣ 𝗢𝗽𝗲𝗿𝗮𝘁𝗶𝗼𝗻𝘀 & 𝗔𝗱𝗺𝗶𝗻𝗶𝘀𝘁𝗿𝗮𝘁𝗶𝗼𝗻---1️⃣ 𝗚𝗼𝘃𝗲𝗿𝗻𝗮𝗻𝗰𝗲 & 𝗢𝘃𝗲𝗿𝘀𝗶𝗴𝗵𝘁✅ GP Removal (Conditions & Process)✅ GP Conflicts of Interest Disclosures✅ GP Devotion of Time✅ Fiduciary Duties Owed by GP✅ Decision-Making Processes✅ LPAC Role & Responsibilities✅ LP Reporting Guidelines✅ Deadlock Resolution Mechanisms (2 or 4 person GPs)2️⃣ 𝗘𝗰𝗼𝗻𝗼𝗺𝗶𝗰 & 𝗧𝗮𝘅 𝗧𝗲𝗿𝗺𝘀✅ Affiliated Limited Partners (reduced/zero fees to GPs & team members)✅ Capital Call Schedule (Timing, Amounts & Late Fees/Interest)✅ Distribution Waterfall (Type, Premium Carry, Hurdle)✅ Fund Expenses/Org Expense Cap vs. Management Fees✅ Special Tax Requirements (ERISA, ECI, FATCA, etc)✅ Subscription Line/Credit Facilities✅ Tax Mandatory Distributions✅ Warehoused Assets/Prior Investments (potential loss of QSBS)3️⃣ 𝗥𝗲𝗴𝘂𝗹𝗮𝘁𝗼𝗿𝘆 𝗖𝗼𝗺𝗽𝗹𝗶𝗮𝗻𝗰𝗲 (VC Funds)✅ Compliance with §§203, 206 (Code of Ethics, Pay-to-Play, Written Policies)✅ CFIUS Protections and Compliance✅ Investment Limitations & Restrictions per §203(l) vs. §203(m)✅ Look-Through Rules and Beneficial Ownership Tests per §3(c)(1)✅ NQI/Qualifying Investment Limits (20% Non-VC Bucket)✅ Warehoused Investments✅ State ERA rules for VC firms <$25M4️⃣ 𝗢𝗽𝗲𝗿𝗮𝘁𝗶𝗼𝗻𝘀 & 𝗔𝗱𝗺𝗶𝗻𝗶𝘀𝘁𝗿𝗮𝘁𝗶𝗼𝗻✅ Trademark Rights and IP Ownership✅ Fund Assets and SPV listings✅ GP and Non-Managing Member Vesting Schedules✅ Location of Principal Office & Key Personnel✅ New Members and Carry Participants✅ Policy on Compensation for Team Members✅ Service Providers (Fund Admin, Tax, Legal Counsel)✅ Verification of Firm's Track Record✅ Cybersecurity and Risk Management