They met at a competition and immediately caught each other’s eye … They met through a mutual friend … It all started with an email … The stories of startups and venture capital funds that finance them start in different ways – there is no universal method. Funds, of course, have their own preferences – some write back to e-mails, others never do that, some like to catch promising ventures at startup competitions, others avoid them. However, it is safe to assume that a good project will not be badly hindered by its choice of a communication channel to attract the attention of the fund, and a weak project will not be greatly helped by it.
However, after this more or less accidentally occurring phase of the first meeting, the process of further exploration is quite standardized. Let’s follow it on the example of the procedure used by INNOventure fund. At the beginning, we perform a preliminary analysis of the information, in terms of whether the project looks feasible, economically sensible and suits our investment portfolio. Then the entrepreneur presents his idea during a meeting. Certainly he can expect a number of detailed questions regarding, among others, technical and organizational issues as well as assumptions and forecasts he has made. If after this stage we are still interested, we will take action to conclude the transaction by gradually deepening the analysis of the startup’s action plan and at the same time negotiating the terms of the contract. Therefore, as a result of the preliminary due diligence process, covering technical, legal, financial and organizational issues, we will present a preliminary version of the proposed terms of the investment agreement (term sheet). After signing it, our mutual contacts will get closer. The parties will jointly develop a plan for the implementation of the project, and at the same time will determine the details of the terms of the investment agreement. Extensive due diligence analysis will be the basis for the final investment decision. Later, the contract will be signed and the fund will take up shares in exchange for a agreed upon amount of money.
Such a complex process is not instant. Its length varies depending on how complicated the project is, how well it is prepared, how advanced the project is and if the negotiation of the contract goes smoothly. Certainly, the fund will seek to sign the contract as soon as possible. This is in our interest – we operate within the strict framework of the investment horizon, and we do not want to be forced to disinvest at an inconvenient moment, pressured by the deadlines and the urgent need to settle accounts with investors. Therefore, the more time we save at the beginning of the transaction, the less probability of its nervous ending. The speed of the investment process depends primarily on the startup itself.