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How to use a due diligence questionnaire
A standardized questionnaire can help you cover the same subjects across managers and identify missing information. ILPA describes its Due Diligence Questionnaire as a framework for key areas of inquiry; the materials were revised November 1, 2021. PRI’s venture-capital responsible-investment DDQ, published November 15, 2022, covers topics including governance, investment processes, reporting and disclosure, and cautions that a questionnaire cannot replace dialogue.
Send a structured questionnaire if useful, then follow up on answers that are vague, inconsistent or material to your decision. Request the documents that substantiate the answers, and compare what the GP says with the governing agreements, financial information and other available evidence. The questions below are prompts: tailor them to your mandate, risk capacity and the fund’s strategy.
1. Does the strategy fit your portfolio?
Questions for the GP
- What is the fund’s investment thesis, target stage, sectors and geography? How does this fund differ from its predecessor?
- How many companies does the GP expect to invest in, how much capital is reserved for follow-on investments, and what ownership or exposure assumptions underpin the target outcome?
- How are opportunities sourced, evaluated and approved? What support does the GP provide after investing?
- What conditions would prompt the GP to change the strategy, investment pace or portfolio construction?
Evidence to request
Ask for the written strategy and portfolio-construction assumptions, the investment-process materials used by the team, and examples showing how the process was applied in actual decisions. Test whether the assets, investment philosophy and proposed strategy match the stated thesis; the Inter-American Development Bank’s Venture Capital Fund Toolkit identifies that match as a diligence consideration. A polished narrative alone does not establish that the process works as described.
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2. Can this team execute—and what does its track record show?
Questions for the GP
- For each material investment in the prior-fund record, who sourced it, approved it and managed the relationship?
- Which outcomes are realized and which remain unrealized? What evidence supports the current valuations?
- What drove the strongest and weakest investments? What did the team learn, and what changed in its process as a result?
- Which people will work on this fund, how will responsibilities and economics be allocated, and what succession arrangements are in place?
- What happens if a key person leaves or is unable to serve?
Evidence to request
Request a fund-by-fund track-record presentation with investment-level information sufficient to understand realization status, valuation support, team attribution and the drivers of outcomes. The IDB toolkit and the published extract from Private Equity Fund Investment Due Diligence both support examining prior performance and value drivers. Quantitative history can help assess whether a manager has managed risk and invested over long horizons, but prior outcomes do not guarantee future results. Give particular scrutiny to whether the people and process behind the cited results will actually manage the proposed fund.
3. Are incentives aligned, and are conflicts controlled?
Questions for the GP
- How much are the GP and principals committing? How is that commitment funded and divided among them?
- What conflicts could arise among this fund, predecessor funds, affiliates, co-investments and portfolio companies?
- How are investment opportunities allocated? How are related-party transactions reviewed and disclosed?
- What authority does the LP advisory committee have, and what consent, key-person or other governance protections are in the LPA?
- How will the GP notify LPs about regulatory inquiries, litigation or other material incidents?
Evidence to request
Check the answers against the LPA, offering materials and conflict-of-interest policies; ask how the GP handles concrete scenarios, not only whether a policy exists. ILPA’s DDQ and Principles offer prompts for fund-specific questions and contract review. The Principles are the third edition, published June 2019; they are guidance, not a substitute for determining the rights actually written into your fund documents.
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4. What will the fund cost, and what rights do the documents give you?
Have qualified counsel compare the LPA, offering documents and any side letter. Investor.gov notes that fund documents and agreements govern fees and expenses over the life of a private fund; the particular terms of your fund’s agreements matter.
Questions and terms to examine
- Fees and offsets: How are management fees calculated over time, and which fees or other income offset them?
- Expenses: Which organizational, broken-deal, transaction and portfolio-company expenses may be charged to the fund or its companies? Are there caps or cost-sharing rules?
- Carried interest and distributions: How is carried interest calculated? What distribution waterfall applies, and how does any clawback work?
- Term and flexibility: What is the fund term, how can it be extended, and when may capital be recycled rather than distributed?
- LP protections: What are the transfer restrictions and default remedies? What reporting, audit, consent and other rights apply?
- Side letters: Which negotiated terms apply to you, and how does the GP address different terms or rights across LPs?
Ask the GP to explain how expenses are allocated in practice, including cases where an expense could plausibly be attributed to more than one fund or portfolio company. ILPA’s Principles & Best Practices address expense caps, fair cost sharing and fee transparency. Do not rely on a presentation’s summary if the legal agreement says something different.
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Questions for the GP—and your own planning
- What is the expected fund life, how do extensions work, and what assumptions underlie the timing of investments and distributions?
- Can you meet capital calls on the timetable set out in the LPA, including under adverse personal or institutional cash-flow conditions?
- If you cannot fund a call, what remedies does the LPA permit?
- Does the fund use subscription credit facilities? If so, for what purposes, at what cost and on what terms? How are their effect on performance and LP exposure disclosed?
Investor.gov warns that private equity fund investments may need to be held for several years before a return is realized and that withdrawals are typically limited. Venture funds have their own governing terms, so verify the actual withdrawal restrictions, call obligations, remedies and extension provisions in the LPA rather than assuming a general description applies to your fund. ILPA’s guidance calls for visibility into subscription-line effects on reported performance, LP exposure, facility terms and costs. Ask for enough detail to understand how those facilities affect the timing and presentation of returns.
6. Are valuation, administration and compliance controls credible?
Questions for the GP
- Who administers the fund, audits it, values investments and maintains its records?
- What valuation policies apply to early-stage holdings that are difficult to price, and who reviews and approves valuation changes?
- What cybersecurity, business-continuity, compliance and personal-trading controls are in place?
- What litigation, regulatory matters, misconduct, conflicts or other significant risks should LPs know about?
Evidence to request
Review the valuation policy, audit and fund-administration arrangements, relevant compliance materials, and the GP’s disclosures about material incidents. The IDB toolkit identifies conflicts, misconduct, litigation, risk and the legal framework as diligence topics. Distinguish a manager’s description of its controls from independent evidence and the documents that establish how those controls operate.
7. What will you receive after committing?
Questions for the GP
- What statements, portfolio data, valuation explanations and capital-call notices will LPs receive, and on what timetable?
- When are annual audited reports delivered? Are definitions and performance measures consistent across funds and vintages?
- Which responsible-investment or ESG risks are material to this strategy, and how are they assessed before and after investment?
- How are incidents, changes in risk and progress on relevant commitments reported to LPs?
Evidence to request
Ask for sample reporting where available, the reporting calendar, and the GP’s written policies and processes relevant to the strategy. PRI’s venture-capital DDQ covers policy and governance, fundraising, pre- and post-investment practices, reporting and disclosure. Focus on information that is material to your mandate, and establish what the GP will report—not merely what it says it considers important.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How to compare funds without relying on a universal score
Compare funds on the same dimensions, using your mandate and capacity for risk to decide which differences matter most. No universal scoring system or weighting is established for this decision. A simple side-by-side record can keep the comparison consistent:
Best Value
| Comparison dimension | Fund A | Fund B | Evidence or open question |
|---|---|---|---|
| Mandate and portfolio fit | Record your assessment | Record your assessment | Identify the strategy assumptions that remain unverified |
| Team continuity and relevant track record | Record your assessment | Record your assessment | Note attribution, realization status and valuation support |
| Fees, expenses and alignment | Record your assessment | Record your assessment | Compare governing terms and conflict protections |
| Liquidity and subscription-line practices | Record your assessment | Record your assessment | Record call, extension, facility and distribution terms |
| Governance, operations and reporting | Record your assessment | Record your assessment | Identify document gaps and follow-up needed |
| Responsible-investment fit | Record your assessment | Record your assessment | Assess relevance to your mandate and the fund’s strategy |
For each open question, record the GP’s answer, the evidence reviewed, any unresolved point and who will follow up. A comparison is useful only if material differences and gaps remain visible rather than being hidden in a single blended score.
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