Template
Co-Investment Due Diligence Checklist
A deal-level co-investment checklist focused on sponsor alignment, adverse selection, timing, and post-close discipline.
What this template is for
Co-investments compress diligence into days, not months. This checklist provides the structure to underwrite deal-level risk consistently, test sponsor alignment, avoid adverse selection, and preserve a record of why the LP chose to participate or pass.
When LP teams use it
- Co-invest opportunity from an existing GP
- Syndicated co-invest from a new sponsor
- Co-invest alongside a fund commitment
- Secondary co-invest opportunity
- Continuation vehicle co-investment review
- Portfolio review of past co-invest performance
- IC preparation for a co-investment decision
The template
Sponsor and deal context
- Sponsor name
- Relationship to sponsor
- Relevant sponsor fund
- Is the LP invested in the sponsor's fund
- Deal name
- Deal type: platform / add-on / growth equity / recap / continuation vehicle / secondary
- Why is this offered as a co-invest
- Capacity reason: fund size limit / concentration limit / syndication need / relationship allocation / other
- Is the sponsor investing from its main fund
- Sponsor fund commitment amount
- Sponsor GP commitment or GP economics in the deal
- Other co-investors and allocation
- Allocation offered to us
- Requested commitment amount
- Minimum and maximum allocation
- Fee terms: no-fee no-carry / reduced fee / reduced carry / full fee
- Any economics paid to sponsor or affiliate
- Deadline for response
Adverse selection and alignment check
- Why us, why now
- Was this opportunity offered broadly or selectively
- Is the sponsor retaining full pro rata exposure
- Is the sponsor reducing exposure through this syndication
- Is the deal too large for the fund or outside mandate
- Is the sponsor using co-investment to solve a portfolio construction issue
- Are existing LPs being offered the same terms
- Are any investors receiving better economics or rights
- Has the sponsor shown us the deals it did not syndicate
- How does this deal compare to the sponsor's typical deals
- Would we want this exposure if it were fully fee-bearing
- Does the sponsor's behavior create any conflict concern
Company specifics
- Business description
- Revenue, EBITDA, growth, margin, free cash flow profile
- Industry position and competitive dynamics
- Customer and supplier concentration
- Management team quality and incentive alignment
- Recurring vs. non-recurring revenue
- Cyclicality
- Regulatory exposure
- Technology or disruption risk
- Historical performance through stress
- Key diligence materials reviewed
Transaction structure
- Purchase price and entry multiple
- Sources and uses
- Equity check size
- Our proposed ownership or exposure
- Sponsor ownership
- Management and seller rollover
- Debt financing terms
- Leverage at close
- Capital structure
- Preferred equity or structured instruments, if any
- Board rights or observer rights
- Minority protections
- Exit rights
- Tag / drag / transfer provisions
- Use of proceeds
- Any related-party transaction or affiliate involvement
Independent underwriting
- Base, downside, and upside case
- Revenue, margin, and multiple assumptions
- Debt paydown, working capital, and capex assumptions
- Exit timing and exit multiple assumptions
- Sensitivity to leverage, exit multiple, growth, margin, and rates
- Break-even case
- What has to be true for this deal to work
- What has to be wrong for this deal to lose money
- How our underwriting differs from the sponsor's deck
Value creation plan
- Sponsor's value creation thesis
- Operational, revenue, and margin initiatives
- Add-on M&A plan
- Management team upgrades
- Technology, systems, or process improvements
- Pricing power thesis
- International expansion, if applicable
- Timeline for key initiatives
- Who owns execution
- Evidence supporting the plan
- What is already underway vs. speculative
- What we would monitor post-close
Sponsor track record in similar deals
- Sponsor experience in this sector and business model
- Sponsor experience at this deal size and leverage level
- Relevant realized and unrealized deals
- Losses in similar situations
- Attribution: which partner led prior similar deals
- Performance of prior co-investments offered by this sponsor
- How prior co-investments performed vs. sponsor fund investments
- Reference feedback on sponsor behavior in co-investments
- Reference feedback on communication quality post-close
Portfolio fit and concentration
- Role this co-investment would play in our portfolio
- Exposure to this sponsor across funds and co-investments
- Exposure to this sector, geography, and asset type
- Vintage-year exposure context
- Single-name and strategy concentration impact
- Liquidity and unfunded commitment impact
- Correlation with existing portfolio exposures
- Does this co-investment create hidden concentration
- What the portfolio loses if we pass
- What risk the portfolio takes if we commit
Legal, tax, and governance terms
- Investment vehicle: direct or feeder
- Legal and tax counsel reviewing
- Side letter, information, and reporting rights
- Board seat or observer rights
- Consent rights and transfer restrictions
- Exit, tag-along, drag-along, and preemptive rights
- Confidentiality and indemnification provisions
- Tax considerations: UBTI, ECI, blocker access, withholding, K-1 timing
- ERISA considerations, if applicable
- Any terms that deviate from the sponsor fund
- Open legal or tax issues before close
Process and timing
- Date opportunity received
- Decision deadline
- Sponsor IC date and our IC date
- Closing timeline
- Materials received and outstanding
- Data room access date
- Management and sponsor calls completed
- Third-party diligence reviewed
- Reference calls completed
- Internal reviewer assigned
- Legal, tax, and ODD review status
- Required approvals
- Decision owner and current blocker
- Can we complete enough diligence before the deadline
Risks and mitigants
- Top three risks and explicit mitigants
- Cyclicality and macro sensitivity
- Customer concentration risk
- Execution, leverage, exit, and valuation risk
- Sponsor conflict and adverse selection risk
- Information asymmetry risk
- Portfolio concentration risk
- Legal or tax risk
- For each: severity, sponsor explanation, LP team view, mitigant, owner, status
Decision memo summary
- One-paragraph investment view
- Primary reason to invest
- Primary reason not to invest
- Most important underwriting assumption
- Most important diligence gap
- Does the no-fee or reduced-fee structure change the decision
- Would we invest on full-fee economics
- Recommended commitment amount
- Recommendation: proceed / proceed with conditions / defer / pass
- Conditions to close
- What would change the recommendation before close
- Reviewer confidence level
Post-close monitoring plan
- Reporting cadence agreed
- Information rights confirmed
- Quarterly check-in plan
- Sponsor contact and internal owner
- KPIs and financial metrics to monitor
- Operational milestones to monitor
- Debt covenant or leverage metrics to monitor
- Follow-on capital expectations
- Exit notification process
- Board or observer reporting, if applicable
- Expected next touchpoint
- Escalation triggers
- Where monitoring notes will be stored
- How this co-investment will be reviewed against original underwriting
Final decision record
- IC decision
- Final commitment amount
- Any change from recommended amount and why
- Vote record, if applicable
- Dissenting or abstaining views
- Final conditions to close
- Open items at signing
- Legal and tax approval status
- Date decision was finalized
- Date closed
- Post-close owner
- Next review date
- Link to final memo, source documents, legal documents, and monitoring record
Common mistakes
- Underwriting on the sponsor's deck rather than independent analysis
- Skipping adverse selection: why is this co-investment available
- Treating no-fee economics as compensation for weaker diligence
- Accepting compressed timing as a reason not to document the decision
- Ignoring whether the sponsor is keeping full exposure
- Failing to compare the deal to the sponsor's typical deals
- Missing hidden concentration across sponsor, sector, vintage, or company exposure
- Not checking whether other co-investors received better terms
- Completing legal review without defining post-close monitoring rights
- No post-close monitoring plan
- Failing to track co-investment outcomes against original underwriting
How Allocator Desk manages this in a live system
- Creates a co-investment diligence workflow with adverse selection, sponsor alignment, timing, and portfolio concentration fields
- Links each co-investment to the sponsor's fund record, prior references, meeting notes, IC memos, and relationship history
- Tracks decision deadlines, missing materials, legal review, tax review, and IC approval status in one place
- Surfaces co-investment concentration by sponsor, sector, geography, company, vintage, and strategy
- Preserves the independent underwriting case, sponsor case, risks, mitigants, and final decision record
- Captures post-close monitoring obligations, information rights, reporting cadence, and escalation triggers
- Turns co-investment decisions from rushed email threads into a searchable record of deal-level judgment and sponsor alignment