The Venture Capital Process

By: J. Skyler Fernandeswww.OneMatchVentures.com

Investment Criteria

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• Industry Focus: Industry A, B, C

• Stage Focus: Seed (X%), Series A (X%), Series B (X%), Series C+ (X%)

• Investment Size: Seed: $250K-$500K, Series A: $500K-$1M (2x Seed), Series B: $1M-$2M (2x Series A), Series C: $3M-$6M (3x Series B)

• Co-Investors: Top tier venture funds, seed funds, angel groups, and angels

• Team: Relevant industry experience, serial entrepreneurs, and committed

• Minimal Viable Product (MVP) = 100% complete and market tested

• Traction: Revenue generating and/or verifiable traction, Min Revenue or EBITDA?

• Competitive Advantages: Proprietary and/or unfair advantages that create sustainable competitive advantages

• Capital Efficiency: Minimal capital needed for operations and execution

• Target Ownership: 5%-25%

• Target Returns: VCs: 5x-10x+ return potential, PE: 2-5x return Potential

Investment Strategy

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• Markets: Large and evolving markets where disruptions are happening

• Diversified Risk: Across a set of related industries and range of stages

• Co-Invest: Mainly co-invest, rarely lead

• Follow-on Capital: Require real traction or an exit on horizon

• Exposure: No more than 10% of fund (or expected total investment capital) in any one company

• Extract Value: Knowledge, talent, technology, and processes

• Add Value: Help provide key resources, clients, employees, board members, advisors, strategic partners, investors, etc.

• Versatility: Companies with multiple avenues for success

• Involvement: Take board seats, observer roles, rarely if ever take board seats

• Liquidity Potential: <5 Years

• Things To Avoid: Regulatory risk, long sell cycles, capital / labor intensive, long tech development

Deal Sourcing

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Deal Sourcing

Ecosystems:Accelerators &

Incubators

Other Investors:VCs, Seed Funds,

Angels, Angel Groups

Network:Employees,

Clients & Partners

Industry Leaders & Experts

Proprietary Network:

Rising Startups / Entrepreneurs

Academic: Top Colleges /

Universities

Events: Startup / VC &

Industry Focused

Large Corporates: Tech Focused Corporations

Best strategy for startups is get an intro to the fund, E-mails are not ideal (typically lower quality, non-vetted)

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Deal Flow Management• Continually Rank & Weigh Deal Flow: In order of consideration

– Market Opportunity: Target Market Size, Growth of Target Market, Penetration Needed

– Team / Board Members / Advisors

– Value Proposition: Product / Service, Problem vs. Solution

– Business Model: Revenue / Expense Strategy, Financial Model

– Traction / Milestones / Timeline

– Stage (Risk): Startup (beta + pre-rev), early stage (beta + post-rev), growth stage, etc.

– Competition: Direct / Indirect Competitors, Market Fit, Competitive Advantages

– Terms: Investment Size, Note / Equity, Valuation (Ownership), etc.

– Co-investors

– Min Capital Needed: To achieve breakeven? Before an exit?

– Value Add Potential: Knowledge, Employees / Board Members, Clients, Partners, etc.

– Exit Opportunities: Who?, Why?, When?

Note: Traction is one of the highest weighed factors in deal flow management for VCs, and often becomes the determining factor when compared to equally great teams, business opportunities, and deal terms, etc.

Process: Source Learn Invest Exit

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Exit ManagementFocus on Winners, Not Losers

Monitor, Support, Follow-OnsReporting & Oversight

Term-Sheet & Investment Execution5-10 Investments / Yr (1-3%)

Final Due DiligenceInvestment Committee: Go (50%, 5-10 Companies / Yr)

2nd Level Due DiligenceInvestment Committee: Go (50%, 10-20) / No Go (50%, 10-20)

Preliminary Due DiligenceGo (50%, 20-40) / No Go (50%, 20-40)

Initial Screening & Elimination40-80 Companies / Yr (20%)

Extensive Deal Sourcing 200-400 Companies / Yr Source

Learn

Invest

Exit

Sign NDA if needed

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Venture Fund Structure

Venture Fund Management LLC (GPs)

Venture A LLC Venture B LLC Venture C LLC

Investors(LPs)

Portfolio Co. A Portfolio Co. B Portfolio Co. C

Profit Sharing (Carry):

80% = LPs20% = GPs

Mgmt Fee: 2%

$ Invested $ Invested$ Invested

Liquidity Event