A two-partner seed fund in Germany closes its first fund at EUR 42 million. Both founders have institutional backgrounds: one from a large growth fund, one from a strategy consultancy with PE exposure. They build their IC process the way they have seen it done: a formal investment memo required before any decision, a pre-investment committee meeting to review materials, a partner vote, and a written record of the outcome with attached supporting documentation.
The process looks correct because it is modelled on correct things. It is not correct for this fund.
Seven months into deployment, a strong pre-seed deal surfaces through a warm introduction. The founder is available for a term sheet conversation within five days. The fund’s IC process, as designed, requires a completed investment memo before any internal discussion. The memo format is twelve sections. A genuine first-draft takes four to six days of analyst time. The fund does not have an analyst. The two GPs write the memo jointly over a weekend. By the time the IC meeting is scheduled, the lead investor has closed the round.
The fund passes on the deal. The stated reason is that the founder moved faster than expected. The real reason is that the fund’s governance infrastructure was designed for an institution that has people to fill it. It was not designed for a two-person team making three to four investments per year at seed stage.
This is the IC design problem in small seed funds: not that the process is wrong in principle, but that it has been imported wholesale from a context that has no operational relevance to the one it is being applied in.
Right-Sizing the IC: What the Regulatory Floor Actually Requires, and What Good Design Adds
The right-sizing problem
The IC process serves two distinct functions that are frequently conflated. The first is regulatory: governance documentation that satisfies the requirements of the fund’s legal and regulatory structure. The second is operational: a decision discipline that improves the quality of investment choices and creates a reviewable record of reasoning.
These two functions have different calibration requirements. Regulatory documentation requirements are largely fixed by jurisdiction and fund structure. Operational IC design should be calibrated to team size, deal cadence, and fund lifecycle stage. A first-time fund in year one of deployment, making four to six investments per year with a two-person team, requires a fundamentally different operational IC than a Fund III institution making twenty investments per year with six investment professionals. Treating them as the same is the error that causes small funds to build processes that are simultaneously too slow for the market they are operating in and too informal to be genuinely rigorous.
The EU regulatory context
For seed fund managers operating in the EU, the relevant regulatory framework depends on fund size and registration approach. Fund managers below the EUR 100 million threshold (or EUR 500 million for unleveraged closed-ended funds without early redemption rights) are not required to be fully authorised under AIFMD. They are, however, subject to a simplified registration and reporting regime with their national competent authority. Many sub-threshold EU seed funds register under the EuVECA (European Venture Capital Funds) regulation, which imposes its own conditions on how qualifying portfolio investments are defined and how the fund is presented to investors.
Under AIFMD II, which EU member states are required to transpose into national law by April 2026, sub-threshold managers operating under the simplified registration regime are subject to updated reporting and disclosure requirements, including in some jurisdictions expanded annual reporting obligations. In Germany specifically, EuVECA managers and sub-threshold fund managers will under the transposing Fund Market Strengthening Act be required to prepare annual financial statements and a management report, with mandatory audit requirements following.
What neither AIFMD nor EuVECA specifies in detail is the internal structure of the investment decision process. The regulatory requirement is for a documented decision-making framework and appropriate governance: it does not prescribe memo length, meeting frequency, or vote structure. The IC process design that satisfies regulatory requirements in a two-person seed fund can be substantially leaner than institutional practice without any regulatory deficit. Regulators set the floor. Good IC design adds what the floor does not require but operational quality demands. As requirements vary by jurisdiction and fund structure, legal and compliance counsel should be consulted on the specific obligations applicable to each fund.
The US regulatory context
For US seed fund managers, the primary federal regulatory consideration is whether to register with the SEC as an investment adviser or operate as an Exempt Reporting Adviser (ERA). Fund managers who advise solely venture capital funds (as defined under SEC Rule 203(l)-1) qualify for the venture capital adviser exemption regardless of AUM, and are required to file Form ADV as an ERA but are not subject to full SEC registration requirements. Fund managers advising solely private funds with under USD 150 million in regulatory AUM qualify for the private fund adviser exemption, which also confers ERA status. Advisers managing below USD 25 million in AUM are not permitted to register with the SEC and look to state securities regulators, with requirements varying significantly by state.
ERA status imposes reporting obligations, anti-fraud provisions under the Advisers Act, and record-keeping requirements, but does not mandate a specific IC structure. As with the EU framework, the regulatory requirement defines what must be documented and disclosed; it does not design the decision process. The US House passed the INVEST Act in 2025, which if enacted would raise the private fund adviser exemption threshold from USD 150 million to USD 175 million, though this has not yet become law at the time of writing. State registration requirements vary considerably and specialist legal counsel should be consulted.
A tiered IC framework: three configurations
The following framework offers three IC configurations calibrated to team size and investment volume. Each satisfies regulatory documentation requirements while being operationally practical for the team structure it describes. None of these configurations replaces legal counsel on jurisdiction-specific obligations.
Configuration 1: Solo GP with structured override documentation
Solo GPs making three to six investments per year have no natural IC counterpart. The operational risk is not insufficient governance: it is the absence of structured challenge to the GP’s own conviction. The solution is a documented override protocol: a written process by which the GP records the thesis case for each investment, the strongest countervailing argument they considered, and a specific factual condition that, if it arose, would cause them to reconsider the investment.
This is not bureaucratic overhead. It is the mechanism by which a solo decision-maker introduces structured friction into a process that would otherwise be entirely self-confirming. The regulatory documentation requirement is satisfied by the decision record. The operational quality requirement is satisfied by the override structure.
Configuration 2: Two-to-three partner collaborative IC with pre-registered decision criteria
This is the configuration for most DACH and Nordic seed funds operating at Fund I or Fund II level. The design principle is that decision criteria are registered before any specific deal arrives in the IC conversation. The IC meeting is then a structured application of those criteria to the specific company, not an open-ended discussion of whether the company is interesting.
The memo requirement in this configuration is not a twelve-section institutional document. It is a structured one-page template completed before the IC discussion, covering: the company’s fit against pre-registered thesis criteria, the three material risks identified during evaluation, the most significant assumption underlying the investment thesis, and the specific conditions under which the fund would decline to follow on. This can be completed by one partner in two to three hours on the basis of two founder meetings and standard desk research. It satisfies documentation requirements and provides the reasoning record needed for post-investment review.
Decisions do not require unanimous approval: the pre-registered criteria specify what constitutes sufficient basis for investment, and the IC record documents how the decision mapped to those criteria. Disagreements are documented as part of the record, not suppressed.
Configuration 3: Four-plus partner IC with formal memo requirements
At four or more investment professionals, the IC process can support the institutional memo format because there is sufficient team resource to produce it without slowing deal execution. The memo requirements here are conventional: thesis, market, team, financials, diligence summary, risks, and terms. The IC meeting is structured with a designated deal champion and a required bear case presentation from a second partner.
At this configuration, the Comfort-Optimised IC patterns described elsewhere in this series become more acute: the social dynamics of a larger group create stronger pressure toward consensus and away from structured disagreement. The mitigant at this configuration is not a leaner process but explicit role assignment: someone is always responsible for the best version of the no.
Decision criteria documentation template
| Element | Configuration 1 (Solo GP) | Configuration 2 (2–3 Partners) | Configuration 3 (4+ Partners) |
| Thesis fit record | Written by GP | One-page structured template | Full investment memo |
| Bear case | Written by GP as devil’s advocate to own thesis | Verbally assigned, noted in record | Formally assigned to a named partner |
| Decision record | GP decision log with override note | Partner sign-off against criteria | Formal IC vote with minutes |
| Risk documentation | Three named risks with materiality rating | Three material risks plus key assumptions | Full risk register in memo |
| Follow-on conditions | Written condition for reconsideration | Conditions noted in IC record | IC-approved follow-on criteria |
| Regulatory documentation | Decision log plus Form ADV / national NCA filing | IC record plus required national filings | IC minutes plus full regulatory filings |
The Implication
The structural change that most immediately improves both speed and decision quality in lean seed funds is not a new tool or a different meeting cadence. It is the separation of thesis criteria from deal evaluation.
When decision criteria are pre-registered in writing before any specific deal arrives, two things happen simultaneously. First, the IC conversation becomes faster: partners are evaluating a specific company against pre-agreed dimensions, not relitigating the fund’s investment philosophy on each deal. Second, the IC becomes more rigorous: the pre-registered criteria force a genuine answer to whether this company fits, rather than allowing the question to be answered post hoc by whether both partners find it interesting.
The one change to implement before the next IC: write down, in one page, the five criteria your fund uses to advance a deal from initial screening to partner meeting. For each criterion, write the minimum standard it requires. Then apply those criteria to the last three deals you declined. If the criteria would not have declined them, they are not yet doing operational work.
Disclaimer: this article provides general analytical commentary on IC process design and does not constitute legal, regulatory, or compliance advice. AIFMD, EuVECA, and US Advisers Act requirements vary significantly by jurisdiction, fund structure, and AUM level. Specialist legal and compliance counsel should be consulted for advice specific to your fund’s situation.