Due Diligence Matters – April 2025
perfORM is an award-winning, international (UK, Switzerland, USA, Hong Kong) and standalone Operational Due Diligence solutions provider with 150+ years of collective ODD experience. We are proud to announce that we have been shortlisted at the 2025 Hedgeweek Global Digital Assets Awards in the ‘Solution Provider of the Year: Innovation’ category.
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Venture Capital ODD
Operational due diligence (ODD) on investment managers is essential for evaluating the operational (non-investment) risks. This proactive approach assesses the operational infrastructure, processes and controls in place, to identify and mitigate potential risks.
Similar to diligence for established investment managers, Venture Capital (VC) investment managers due diligence is important. Although there may be limited information and a lack of historical data, particularly regarding young or start up VC managers, it remains necessary to conduct due diligence.
Due diligence for VC investment managers is similar to the process conducted on more established investment managers, with some differences detailed below.
Key Person Risk: Over-reliance on a few key individuals can pose a risk if they leave the firm or are unable to perform their duties. This is crucial in VC, where investment success depends on their expertise, knowledge, decision making and leadership. The establishment of a succession plan ensures there are individuals ready to step in if a key person event occurs. From a fund perspective legal documentation, such as an LPA, should include a key person event clause in the event one or more key person(s) are no longer able to undertake their duties and then setting out how the fund and investment will be managed going forward.
Due Diligence: Gain an understanding of what due diligence is undertaken on prospective portfolio companies, before investing. Ensure background checks, including criminal and credit checks, are conducted on directors of these companies. Verify their legitimacy, such as registration on applicable company registers, and up-to-date statutory filings. Failure to conduct thorough due diligence can result in potential investments in fraudulent companies.
Processes/policies: It is essential to re review current policies and procedures to ensure they are up-to-date and clearly outline how processes are conducted, as well as define the roles and responsibilities for all critical functions. For example, is there a valuation policy setting out how portfolio companies are valued? Is there a valuation committee and who are the members/participants? Are third party valuation agents used and what is the valuation process for impaired or underperforming portfolio companies? Considering the nature of VC investments, there is no exchange-quoted price, and valuation techniques such as discounted cash flow or acquisition costs are employed. A clearly defined valuation policy ensures a consistent approach, at least on paper. Inefficient or poorly defined processes can lead to suboptimal decisions, which may result in operational issues.
Service Providers and Counterparties: The quality and reliability of the service providers engaged should be evaluated. Providers such as administrators should be assessed to ensure that they can support the firm’s operations effectively. Independent verification of service providers should be completed to confirm that they have been engaged and establish what services they provide. In addition, service providers expertise of the asset class should be considered.
Segregation of duties: Understand the internal control mechanism and how they are designed to prevent errors, fraud, or misappropriation of finances. Small or recently established VC managers may not have the staff bandwidth to segregate functions, such as authorisation of transactions. Dual signatories is one way to mitigate against any one individual overseeing a critical financial function. Alternatively engaging an administrator to perform payments alongside is another way to mitigate the risk. Individuals responsible for recording transactions in the accounting system should not access payment systems; regular account reconciliation and review of transactions should be performed by individuals who are not involved in the day-to-day processing of those transactions. Segregation of duties enhances internal controls, reduce risks, and ensures operational integrity.
Operational due diligence is essential for identifying potential risks and ensures that a VC investment manager has the appropriate infrastructure, processes, and controls in place to mitigate risks while managing investments. By conducting VC ODD, investors can make well-informed decisions and address any identified risks before proceeding with an allocation.
ODD Report Solution
Our ODD Report Solution is not just another tick in a box, it is an innovative approach to operational due diligence. A pragmatic solution for Investment Managers and Service Providers which engage us to complete an ODD review.
Investment Manager: Gemcorp Capital Management Limited – please contact here to request access to our September 2023 dated ODD Report
Investment Manager: Hivemind Capital Partners UK LLP – please contact here to request access to our September 2023 dated ODD Report
Investment Manager: MARK Capital Management LP – please contact here to request access to our December 2024 dated ODD Report
Investment Manager: 24 Capital Management Ltd – please contact here to request access to our December 2024 dated ODD Report
Investment Manager: Edge Capital Investment Management, LLC – please contact here to request access to our September 2024 dated ODD Report
Investment Manager: Redhedge Asset Management, LLP – please contact here to request access to our September 2024 dated ODD Report
Investment Manager: Fasanara Capital Limited – please contact here to request access to our July 2024 dated ODD Report
Investment Manager: Eltican Asset Management SAS – please contact here to request access to our July 2024 dated ODD Report
Digital Asset Service Provider: Copper Technologies (Switzerland) AG – please contact here to request access to our April 2024 dated ODD Report. UNDERGOING ANNUAL RENEWAL PROCESS
Investment Manager: Hyperion Decimus, LLC – please contact here to request access to our March 2024 dated ODD Report. UNDERGOING ANNUAL RENEWAL PROCESS
Investment Manager: Coral Cove Capital Ltd – please contact here to request access to our January 2024 dated ODD Report
Investment Manager: Wincent Capital Management Limited – please contact here to request access to our September 2023 dated ODD Report. UNDERGOING ANNUAL RENEWAL PROCESS