Underwriting Standards
Underwriting standards are the minimum rules and criteria a manager uses to approve investments consistently.
Allocator relevance: A primary diligence signal—standards determine whether risk is controlled or drifted into during hot cycles.
Expanded Definition
Standards can include valuation thresholds, minimum covenant protections, required diligence steps, concentration rules, and downside case requirements. In credit, standards often define covenant strength, leverage limits, and recovery assumptions. In venture/PE, standards may define pricing discipline, ownership targets, follow-on reserve rules, and governance terms.
Allocators care because standards reveal how a manager behaves when competition rises and discipline is hardest.
How It Works in Practice
Standards are embedded in IC processes, checklists, and deal approvals. The key is whether standards are enforced, documented, and measured—or waived routinely.
Decision Authority and Governance
Governance defines who can grant exceptions and how they are tracked. A pattern of exceptions is often the earliest drift indicator.
Common Misconceptions
- Standards reduce flexibility and opportunity.
- Standards are visible from results alone.
- Having standards equals enforcing them.
Key Takeaways
- Standards are only real if enforced.
- Exceptions should be rare and auditable.
- Standards define behavior under pressure.