Forensic : our Methodology for Detecting Management Frauds in Investments.

The Risk-Pressure-Opportunity-Rationalization Model.

Our Value Creation department, led by Loïc Gach, plays a crucial role in supporting venture capital investment funds, providing expertise in the in-depth analysis of portfolio companies’ management. This involvement results in a financial assessment (in k€) of potential value loss.

We intervene regularly, and sometimes in a targeted manner, in evaluating financial practices, especially when it comes to detecting cases of fraud. In this article, we present in detail the methodology we have developed for this purpose.

Venture Capital Investments: A Fertile Ground for Fraud (exploration of the fraud triangle applied to this domain):

  • Opportunity: The availability of significant liquidity and weak internal controls (young company, less structured), relying on trust between VC Funds and Managers.
  • Pressure: The need to develop the company and achieve the goals presented to VC funds to justify the use of funds.
  • Rationalization: The obligation to perform to showcase a strong deployment capability to other entrepreneurs, the market, or other fund holdings to attract a future investor/acquirer.



The 6 standard analysis points in our missions:

  1. Responsibility and Obligations: Identify contractual and legal responsibilities of the management towards the VC fund. Determine if these obligations have been met and if any breaches have occurred.
  2. Accuracy of Information Provided: Evaluate the reliability of information provided by the management to the VC fund. Search for signs of concealment or manipulation of financial data.
  3. Management Decisions and Historical vs Current vs Objectives Performance: Analyze the decisions made by the management and their impact on the company’s financial performance. Compare historical and current performances with the objectives presented to the VC funds to identify any divergences or irregularities.
  4. Relationship with the Fund During the Investment Period: Examine the quality of communication and collaboration between the management and the VC fund. Determine if any warning signals were ignored or concealed by the management.
  5. Third-Party Recurrence: Identify the frequency of interactions with third parties in the financial or operational transactions of the company. Look for links between these third parties and the management, which could indicate conflicts of interest or fraudulent practices.
  6. Management’s Personal Situation and Mapping of Professional Relationships: Examine the personal and professional backgrounds of the management team. Map their professional relationships to identify potential conflicts of interest or complicity in fraud.


In a nutshell :

By incorporating these elements into the analysis, the investigation can provide the VC fund with a comprehensive view of management’s stewardship and fund utilization. Additionally, it can offer recommendations to safeguard its interests and maximize the value of its investment.

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