Overview of the Engagement
DueCap was engaged to conduct an initial review of a proposed investment in a privately held U.S. startup through a dedicated investment vehicle.
The submitted package consisted of one signed 12-page agreement governing the investment vehicle. The document provided information about the vehicle’s structure, management authority, fees, distribution waterfall, tax-allocation mechanics, transfer restrictions, and indemnification provisions.
However, the package contained almost no supporting evidence about the underlying startup. It did not provide a pitch deck, financial statements, operating metrics, capitalization table, investment instrument, valuation, ownership calculation, customer evidence, or information about the company’s product, market, team, and commercial performance.
Key Findings
DueCap found that the submitted agreement was sufficient to begin reviewing the structure and economics of the investment vehicle, but not sufficient to assess the underlying startup or the proposed investment terms.
The review identified several issues requiring clarification before the investor could conduct a productive substantive conversation. These included an incomplete governing-document package, undisclosed investment terms, an unknown gross-to-net funds flow, broad manager authority, and the absence of operating and financial evidence from the underlying company.
The stated management-fee schedule amounted to 10% of aggregate capital contributions over four years, assuming the same contribution base applied throughout the period. The agreement also stated a fixed vehicle administration fee of $9,500 for the initial four-year period, increasing to $11,000 if the vehicle remained active beyond four years. The review further established that fees and expenses could reduce the amount of investor capital ultimately deployed into the underlying company, but the actual net investment amount could not be calculated from the submitted materials.
The agreement described a distribution waterfall under which investors would first receive a return of contributed capital, followed by an 80/20 split between investors and the manager. No preferred return or hurdle was stated in the reviewed agreement, although DueCap noted that additional governing documents could contain relevant terms.
Screening Outcome
DueCap concluded that the opportunity was not ready for a substantive founder or sponsor conversation based on the available package.
Rather than filling the missing information with assumptions, DueCap prepared a prioritized evidence request and 15 questions covering the underlying business, investment security, valuation, capitalization, vehicle governance, fees, funds flow, financial condition, and investor rights.
The recommended next step was to request the missing governing documents, transaction materials, capitalization records, operating information, and financial evidence before continuing the investment review.
DueCap’s Role
DueCap reviewed the submitted investment documentation and converted it into a structured Investment Screening Brief for the investor.
The Brief distinguished confirmed facts from assumptions, calculated the economics that could be supported by the available documents, identified the information preventing further assessment, and prepared the investor for a more focused follow-up with the sponsor and company.
DueCap did not make an investment recommendation or provide legal or tax advice. The purpose of the engagement was to establish what was known, what remained unresolved, and what evidence was required before the opportunity could be evaluated further.
Company, investor, sponsor, and vehicle details have been withheld. Certain descriptive details have been generalized to preserve confidentiality.