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Use case

Venture Capital

Diligence is compressed into the weeks before the wire. Exposure lasts a decade. The workflow covers both, plus the parties who join a cap table at every round without the fund ever onboarding them.

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Deal and holding period

A fortnight of diligence, then ten years of exposure.

  1. Week oneTerm sheetWalking away still costs nothing.
  2. Week twoFounder and entity checksFounders, directors and the investing entity.
  3. Day of the wireCapital committedThe last clean point to decline.
  4. About 10 yearsHolding periodLimited control, no transactional signal, and a fund that remains exposed to whatever the company does next. Re-screening runs against the lists rather than against the company.
  5. At each roundNew investors join the cap tableParties the fund never diligenced now share the register, and in some cases the board.
  6. At exitAcquirer or secondary buyerA counterparty arriving at the end, often under time pressure, with the diligence burden reversed.
Running alongside
  • LP subscription screening on the fund's own investors
  • Board and director changes at portfolio companies
  • Down rounds and recapitalisations that reshape the register
Three tight columns of diligence, then a decade drawn at a fraction of true scale. The fund controls everything left of the wire and almost none of what follows. That asymmetry, not the diligence itself, is what the screening programme has to be built around.

A venture fund's screening problem is shaped by an asymmetry. Everything the fund controls happens in the weeks before the wire. Everything it is exposed to happens over the decade afterwards, inside companies it can influence but not direct.

That is the reverse of most AML relationships, where a firm retains the ability to restrict or exit and gets a stream of transactions to watch. Here the decision point arrives once, early, and then closes.

Why the pre-wire check carries more weight

An onboarding decision can be revisited. A bank can restrict an account, a fund manager can decline a subscription, and both keep the option to exit. A venture investment has no equivalent lever: illiquid, minority, and held for years.

So the diligence before the wire is not the first control among several. For much of the holding period it is the only one that was ever fully within the fund's gift.

The parties nobody onboarded

Each round adds names to the register. A Series B introduces investors the fund did not select, may not have met, and did not diligence, some of whom acquire information rights or board seats.

Treating the cap table as an attribute of the company misses this entirely. The register is a list of parties, and it changes without the fund doing anything. That is why new investors are marked as a distinct kind on the timeline above, alongside the acquirer at exit: they are not a change to an existing relationship, they are a new one.

The direction most funds forget

A fund screens its investments. It also has investors of its own, and subscription screening on limited partners is the obligation most often left to the administrator and assumed to be handled.

It runs on a different rhythm to portfolio work, because capital arrives at closes rather than at deal milestones, which is why it sits in the "running alongside" row rather than on the main line.

What an LP or a regulator asks later

Both ask the same question, years after the fact, about one specific decision: what did you know when you committed capital, and what did you do about it?

Answering means the record has to capture what was known at the time rather than what is known now. A file assembled retrospectively describes the present, which is not what either party is asking about.

For the sector view and its obligations, see the wealth and asset management industry page. For the underlying components, see enhanced due diligence and PEP and sanctions screening.

What we do.

Founder and entity diligence

Screen the people and the investing entity while declining is still costless. Once the wire has gone, the fund's options narrow to influence rather than refusal.

Cap table screening

An investment is a relationship with everyone else on the register, not only with the founders. A round can introduce a party the fund would never have chosen to underwrite.

Portfolio re-screening

Re-screen holdings automatically as lists change. Ten years is long enough for a clean founder to become a sanctioned one, with nothing observable happening inside the company.

LP subscription checks

A fund screens in two directions. Its own investors need the same treatment as its investments, and the obligation sits with the manager either way.

Evidence for an LP or a regulator

Both ask the same question years later, about a specific decision. Records need to show what was known at the point capital was committed, not what is known now.

Highlights.

  • Diligence concentrated where the fund still has the option to decline
  • Continuous re-screening across a holding period with no transactional signal
  • New cap-table parties treated as parties, not as a change to an existing record
  • The fund's own investors screened alongside its investments

Questions

Common questions about venture capital.

What makes venture capital screening different from customer onboarding?
The asymmetry between control and exposure. An onboarding decision can be revisited, and the relationship generates transactions to monitor. A venture investment is close to irreversible, produces almost no transactional signal, and leaves the fund exposed for years to decisions taken by people it cannot direct.
Why screen the cap table rather than just the founders?
Because each funding round adds parties to the register that the fund never diligenced and did not choose. Those parties can hold information rights, board seats and influence over an exit. Screening only the founders describes the company as it was at entry, not as it is.
Does a fund need to screen its own investors?
Yes, and it is the half most often overlooked. Subscription screening on limited partners sits with the manager, and it runs on a different cadence to portfolio work, since capital arrives at closes rather than at deal milestones.
What does a fund actually do when a portfolio company throws a match?
The response is influence rather than exit. Escalate through board representation and information rights, document the position, and in a serious case seek to divest. That is precisely why the pre-wire check matters more here than in a relationship that can simply be ended.
How does this differ from the wealth and asset management industry page?
That page covers the obligations across the sector. This one covers the deal and holding workflow specifically, including cap-table and LP screening, which a general asset-management view does not reach.

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