The Inside Look of the Investment Process for VCs

Many Entrepreneurs understand the basics behind the attributes that Venture Capital (VC) firms base their investment decisions; but do you know what steps they take to get there? The following post will highlight the investment process and the timeline associated for the typical VC process.

 

Prior to reading the VC process, be sure to take a look at few prior blogs about what to include within a presentation:

-       Knowing The Questions You Will Need To Answer When Speaking To An Investor

-       Building a Presentation 101

-       The Top 10 Must Do’s to Make a Killer Pitch

-       Making a Pitch: The 10/20/30 Rule

During any investment decision, VC’s tend to look at the following buckets:

-       Management: We’ve all heard the infamous quote of a VC firm would invest in an “A team with a B idea; rather than a B team with an A idea”… The purpose is to determine whether the management team has the experience required to make the company go?

-       Market: Is it growing? Shrinking?... where is it headed?

-       Product/Service + IP: Does the product or service meet up to expectations and is there any intellectual proprietary that will prevent competitors from entering the space

-       Financials: Do they make sense? Can the company grow as suggested? Has the team thought of the different road blocks and prepared for them financially.

-       Economic and Regulatory: Are there any economic or regulatory policies that will prohibit the company from meeting expected milestones? 

The purpose of these questions is to evaluation risk; but let’s take a look at what happens from the time that a referral is made until you receive that check in your bank account.

The previous picture is pretty self-explanatory from the time that you get a referral until you receive funding; the VC has to go through the following process in order to make up their mind.

Note: the first handshake establish the fact that the VC is interested and wants to proceed with their internal due diligence (learning more about the company). From there until a term sheet is issued and signed, you can see how many different meetings, more meetings, and you guessed it MEETINGS is required. This takes approximately four to six months.

This next picture illustrates the VC and the company’s timeline based on each step:

Rather than writing it all out, I thought a few pictures would do the trick J

If you feel like there is something else that should be added or have any questions, please do not hesitate to email or share as a comment.

Ashkan

Ashkan [at] GreenhornConnect [dot] com

 

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