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The Venture Capital Process
By: J. Skyler Fernandes
www.OneMatchVentures.com
Investment Criteria
2
• 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
3
• 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
4
Deal
Sourcing
Ecosystems:
Accelerators &
Incubators
Other Investors:
VCs, Seed
Funds, Angels, A
ngel Groups
Network:
Employees, Clien
ts & 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)
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?
5
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
6
Exit Management
Focus on Winners, Not Losers
Monitor, Support, Follow-Ons
Reporting & Oversight
Term-Sheet & Investment Execution
5-10 Investments / Yr (1-3%)
Final Due Diligence
Investment Committee: Go (50%, 5-10 Companies / Yr)
2nd Level Due Diligence
Investment Committee: Go (50%, 10-20) / No Go (50%, 10-20)
Preliminary Due Diligence
Go (50%, 20-40) / No Go (50%, 20-40)
Initial Screening & Elimination
40-80 Companies / Yr (20%)
Extensive Deal Sourcing
200-400 Companies / Yr
Source
Learn
Invest
Exit
Sign NDA if
needed
Venture Fund Structure
7
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% = LPs
20% = GPs
Mgmt Fee: 2%
$ Invested $ Invested
$ Invested
Liquidity Event

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The Venture Capital Process

  • 1. The Venture Capital Process By: J. Skyler Fernandes www.OneMatchVentures.com
  • 2. Investment Criteria 2 • 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
  • 3. Investment Strategy 3 • 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
  • 4. Deal Sourcing 4 Deal Sourcing Ecosystems: Accelerators & Incubators Other Investors: VCs, Seed Funds, Angels, A ngel Groups Network: Employees, Clien ts & 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)
  • 5. 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? 5 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.
  • 6. Process: Source  Learn  Invest  Exit 6 Exit Management Focus on Winners, Not Losers Monitor, Support, Follow-Ons Reporting & Oversight Term-Sheet & Investment Execution 5-10 Investments / Yr (1-3%) Final Due Diligence Investment Committee: Go (50%, 5-10 Companies / Yr) 2nd Level Due Diligence Investment Committee: Go (50%, 10-20) / No Go (50%, 10-20) Preliminary Due Diligence Go (50%, 20-40) / No Go (50%, 20-40) Initial Screening & Elimination 40-80 Companies / Yr (20%) Extensive Deal Sourcing 200-400 Companies / Yr Source Learn Invest Exit Sign NDA if needed
  • 7. Venture Fund Structure 7 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% = LPs 20% = GPs Mgmt Fee: 2% $ Invested $ Invested $ Invested Liquidity Event