A recent blog by Jeff Skinner in the London Business School Review argues that "the greatest tragedy that can befall any venture is an irreversible falling out between its founders. The venture may have huge potential but if the team falls out all is lost".  

If, in the context of an investment fund, the "team" is the symbiotic relationship between the investor and money managers, in my view, the greatest avoidable tragedy is triggering a crisis by not having the foresight or discipline to structure with the full life-cycle of the fund in mind. 

While it is always crucial to act quickly to "get the money in", it is equally important to ask a few vital questions:

  1. Assuming that the fund is successful and the intention is to continue to grow -- is the fund constitutionally structured to scale up?
  2. How does the fund's seed investor strategy contemplate the fund's obligations to other investors?
  3. When the market turns or investor sentiment shifts -- do the fund's documents include appropriate provisions to mitigate potential challenges?
  4. How and where are these provisions disclosed? What's missing?
  5. How are other fund's navigating these matters?
  6. Do the fund's advisors have sufficient depth of technical expertise and breadth of market-view to help?

If these questions were not addressed pre-launch, all is not lost. An annual review for existing funds can be an invaluable tool to identify any gaps and to create a strategy to mitigate future issues.