Overview
| Phases |
Steps |
Founder’s goal |
Investor’s goals |
| 1. Pre-investment phase |
Deal sourcing |
Find investor |
Find startup |
| 2. Decision-making phase |
First contact |
Deserve screening call |
Check match with thesis |
| 3. Decision-making phase |
Screening call |
Deserve partner review |
Understand the business |
| 4. Decision-making phase |
Partner review |
Deserve term sheet |
Make a final decision |
| 5. Deal-making phase |
Term sheet |
Build an acceptable draft |
Build an acceptable draft |
| 6. Deal-making phase |
Due diligence |
Send data-room fast |
Validate all the information |
| 7. Deal-making phase |
Capital deploy |
Get money in the bank |
Send funds to the bank |
| 8. Post-investment phase |
Deal support |
Keep investors posted |
Support founders |
Tips and tricks
- The investment deal process consists of 2 main phases: decision-making and deal-making.
- The duration and number of steps involved in investing can differ depending on the type of investor, the sector of the startup, and its investment stage.
- Large firms often have long, bureaucratic processes, whereas MicroVCs and angel investors can make investment decisions within one or two calls.
- The average time from initial contact to getting funds in the bank account is 1-2 months during the seed stage.
- The average time from initial contact to getting funds in the bank account is 2-3 months during the seed stage.
- Founders aim to advance to the next stage, while investors assess the likelihood of success and discard dubious investments.
- From my experience, 75% of deals are closed using warm introductions, and only 25% by cold emails.
- Term sheets vary based on the stage of a startup's funding. For a priced round, investors sign more comprehensive term sheets, while for an unpriced round, they sign convertibles which typically span 3-5 pages.
- Founders typically tend to be creative and exaggerate their status and traction. Therefore, investors need to understand the business thoroughly and then validate it during the due diligence stage.
Step #1: Deal sourcing
The first stage of the deal process is also known as deal origination. This involves finding leads and identifying potential investments, which is often the most challenging step in the VC industry.
Deal sourcing in venture capital seeks lucrative investment prospects. It involves researching, assessing, and selecting investments that could bring high returns.
VCs can build a deal flow using 2 methods: inbound and outbound.
- Inbound deals refer to startups approaching investors via awareness, brand, and referrals. It includes both short-term activities such as direct referrals from portfolio companies and other investors, as well as long-term activities such as building own media, newsletter, or blog.
- Outbound investing involves investors proactively seeking potential investments, often through attending events, email marketing, or research.
Step #2: First contact