There’s a lot of talk in the venture world these days about the investment process, the speed of that process, and the pace (i.e. frequency) at which VC firms are making investments. In hot markets like this, it’s fast, fast, and fast.
Venture Capital is a broad category. Obviously, the dynamics between investors and teams and the hard data available to investors to inform their decisions are much different in late-stage rounds. For the purposes of this discussion let’s focus on early-stage investing, primarily Series A rounds where we generally first invest.
Founders should understand the typical Series A investment is the beginning of a 7-10+ year relationship. Not to be coy, but that’s longer than the average marriage in this country and unlike a marriage, you can’t divorce your investor. In our own portfolio, Chip was on the board of Appnexus for 10 years before they were acquired by AT&T. Brian was on the board of Shopkeep for over 9 years before they were acquired by Lightspeed POS. Those are two examples but across the industry, this is the norm.
In 2021 we hear stories of founders getting term sheets after one meeting – or Zoom in today’s world. In some cases that may be a great thing, but remember this process is a two-way street. Are you comfortable entering a long-term relationship with a firm, and equally or more importantly the point person at that firm, after one or two meetings? And BTW, we’re not naive. We’ve raised hundreds of millions for our funds and helped our companies raise $2B+ of private and public capital over the years. It’s time consuming, frustrating and we’d rather focus on running our businesses instead. With that said it’s worth really thinking about what YOUR process looks like, not just the VCs.
When people ask us what our process is I answer as honestly as I can…it depends. Every team, relationship, company, market, and tech is different and therefore requires a different process.
At a very high level it looks something like this:
- We dig around looking for the very rare intersection of team, tech, market trends, and macro drivers that can yield a company that can return our fund and then some. We find a way to get a meeting and if we’re lucky enough the team may come inbound via our network.
- There’s an initial meeting with one TVP team member.
- If interested, we discuss as a group and then work on key questions/ issues. If + socialize with another team member.
- Another round of questions and info gathering. If + full group meeting.
- This can lead to an investment decision but more often than not leads to more questions. And of course, there are references, customer calls, intros to potential customers/ partners, all that stuff.
- If + then final pitch meeting with the full team. Somewhere toward the end, we start talking ballpark terms to make sure we’re all in the same zip code and then put a fine point on it via term sheet.
- Execute term sheet and close deal.
We’ve done this really fast (i.e. ~2 weeks) and candidly really slow. Often we meet with teams when they raise their seed rounds just to start building the relationship (and tell them that before the meeting and make it their call to meet or not).
I could make this look more structured and formal but I’m not going to bullshit everyone by making it look faster or cleaner than it really is. But here’s the thing…all those interactions are not just diligence for us, they’re diligence for YOU. Do our communication styles mesh? Do we both say what we do and do what we say? If and when we get to an impasse how do we manage through it together? After 20 years as an early-stage VC, I have found that the process itself is the best diligence for everyone involved.
Hope that’s helpful. Please reach out to anyone on the TVP with any questions.
Chip