I firmly believe that every investment decision must withstand intense scrutiny, not just from Sapphire (as an investment manager), but also from the market, the regulator, and ultimately, the test of time. The due diligence process is rigorous by design, balancing data-driven analysis with real-world context, and coupling professional scepticism with open-minded engagement.

Recently, during an investment committee meeting with one of our fund advisers (who is usually a sector specialist), our team had to assess a potential investment in a fast-growing fintech company. The conversation offered an ideal illustration of how Sapphire approaches due diligence: methodically, independently, and always with investor protection at its core.

Below is a video summary of this article.

1. Verifying the Facts

Our process begins with verification. Before any discussion of strategy or valuation, we insist on clarity of numbers and terms. At the start of the meeting, we confirmed the investment quantum, equity stake, and share class eligibility for EIS purposes — a fundamental step to ensure compliance with both the FCA’s rules for small authorised UK AIFMs and the fund’s Information Memorandum.

Even small adjustments — such as a revised round size or an updated share price — are documented, questioned, and verified. This prevents assumptions from entering the record. In this case, the figures shifted on the morning of the meeting as a new lead investor entered the round. Rather than accept the update at face value, we paused to dissect its implications for valuation, ownership dilution, and investor timing.

This discipline of verification first ensures that the foundations of any investment decision are solid. It’s also a hallmark of Sapphire’s compliance culture — one that aligns with the FCA Principles for Businesses, specifically Principles 2 (Skill, Care and Diligence) and 3 (Management and Control).

2. Understanding the Business Model, Not Just the Numbers

I view due diligence as much more than financial modelling. Numbers are vital, but understanding how a company earns them is essential.

Our team delves deeper into the investment proposition to understand the underlying technology, target customers, and traction.

We examined whether the claimed signed customer contracts supported the annualised revenue projection, how these contracts were structured, and whether revenue ramp-up assumptions were credible. Our fund adviser shared that the business had already secured major clients, with documented agreements reflecting realistic transaction volumes — the kind of granular evidence that transforms a forecast into a testable assertion.

This stage of diligence is what we call “the bridge between belief and evidence.” Every Sapphire investment committee meeting demands this bridge — a direct link between company narrative and documentary proof. It’s also where we assess risk through the lens of valuation methodology under the International Private Equity Valuation ("IPEV") guidelines, ensuring that any value calibration from a prior funding round is objectively defensible and documented.

3. Assessing the People Behind the Pitch

For Sapphire, management capability remains the most critical determinant of success. A strong founder narrative may open the door, but only an experienced, self-aware, and collaborative team earns our conviction.

In this specific case, the founder brought a notable pedigree. His co-founders were also highly experienced from reputable corporations, each bringing deep domain expertise.

We interrogated the team's stability, the quality of their hires, and their cultural resilience. Importantly, we asked about governance — who holds board and observer rights, what oversight mechanisms are in place, and whether there are clear escalation routes for fund managers. In our framework, human capital is not a “soft” consideration; it is a measurable risk factor that directly impacts valuation and exit potential.

4. Analysing Market Context and Competitive Edge

Even the strongest founders operate within competitive ecosystems. Sapphire’s due diligence goes beyond company-specific analysis to map each business's position within its broader market.

We challenged the sustainability of the identified competitive advantage: could competitors undercut pricing? How defensible is the early-stage company’s position once the market matures?

Such questioning is central to our “constructive tension” model of engagement. We aim to test assumptions before the market does. This not only safeguards investors but helps founders sharpen their strategies and articulate risk-mitigation plans that will later resonate with Series A or institutional investors.

5. Ensuring Compliance and Transparency

A core differentiator of Sapphire’s due diligence is our integration of regulatory oversight into every stage of investment analysis. As an FCA-authorised and regulated small-scope AIFM, we operate under the Alternative Investment Fund Managers Regulations 2013 (AIFM) and adhere to the Senior Management Arrangements, Systems and Controls (SYSC) sourcebook.

That means every investment recommendation must at least demonstrate:

• A transparent fee structure compliant with the fund’s Information Memorandum;
• Confirmation of EIS eligibility and Advanced Assurance validity;
• Independent valuation cross-checks against market comparables; and
• Clear documentation of potential conflicts of interest (and their absence).

Each of these confirmations is explicitly addressed and recorded—a testament to our structured governance and the high standards we expect from our appointed fund advisers.

6. Continuous Engagement, Not a One-Off Event

Due diligence does not end when a deal closes. It is an ongoing relationship grounded in transparency and mutual accountability. At Sapphire, we see such engagement as an extension of due diligence — ensuring that portfolio companies remain aligned with investor expectations, financial controls, and regulatory obligations. It’s also consistent with the FCA’s expectation that authorised managers “maintain effective oversight of delegated activities".

Conclusion: Rigour as a Competitive Advantage

“Patience and diligence, like faith, remove mountains.”

William Penn.

What distinguishes Sapphire’s due diligence process is not bureaucracy but conviction. Every meeting, every model, every valuation memo is built to answer one simple question: Will this investment deliver good outcomes for our investors?

By combining institutional rigour with entrepreneurial understanding, we aim to protect investors while empowering innovation.

That balance — between ambition and accountability — is what has defined Sapphire since the very first day we started. And it’s what ensures that when we invest, we do so with confidence grounded in evidence.

Next Steps:
If you would like advice on how to perform due diligence, or how to set up an investment fund, such as a GP/LP fund or an EIS fund, or if you need an FCA authorised operator and manager to manage the fund, or need pricing and options, fill out this form, and we will be in touch right away.