Four Stages When Raising Capital from a VC

Written by our Master Bill Lewis

Here we will dive into the opaque world of the venture capital meeting process.  This is the Silicon Valley process and it’s not dissimilar to other places like in America and Europe.

Assuming that your company actually get’s through the first hurdle and is accepted for a detailed review by a Venture Capital firm this is what you should expect at each stage.


Step 1 — Initial Filtering

This is the first introductory meeting between the VC and yourself and is designed to find out if your company is worth exploring further for investment.

How is the first meeting conducted?  They are usually casual and sometimes scheduled outside of an office setting, such as a coffee shop or members club. Investors like to talk, so it’s up to you to politely focus their attention on your pitch; and use your deck if you can. If circumstances are not conducive to using a deck, then talk though the deck sequence (which you have already learned and prepared for) in a casual but structured way.  But, like the swan, you will appear smooth and unruffled, even if your mind is going at a thousand miles per hour.

Follow up.  If the VC is interested, they will often follow up within one business day, but remember, no matter how positive they sound at this stage, a commitment is not imminent.

What the VC is looking for: At this meeting VCs are looking for a sensational team first. Then you must demonstrate how your team will beat the odds and dominate a massive market. You need to show traction, and steady significant growth, with an uptick in sight,


Step 2 — Socialisation

Next the VC is will socialise your company in the firm. You will participate in this process. Their goal is to build consensus with a few of their colleagues.

What happens: Meetings are held at your office or the VC’s, and at least one other investor from the VC firm will join. In this meeting you can expect a much closer examination of your company’s strengths and weaknesses. Depending how you pitched at the first meeting you may (or may not) be asked to do a formal pitch — be ready (check beforehand with your initial contact).  In any event the attendees will have reviewed your deck and discussed the opportunity amongst themselves in advance. If your product is publicly available, they will have tried it and you should expect questions on the experience.

What the VC is looking for: Your initial contact is hoping that you will get their colleague(s) just as excited as they are.  They will want to connect your traction and growth to a long term vision. Strong answers to the core questions are paramount, e.g. market opportunity, customer acquisition, competitive advantage. They will also want to see that you are willing to answer probing questions, have great depth in your field, and in your market.  You will need to show that you know your competitor landscape intimately.  You will also be expected to be highly articulate regarding you financials and Ask.

You may need to repeat this process in front of a larger representative group in the VC firm before the Partner Meeting.

Step 3 — Company – Partner Meeting

This is the VC’s decision time. The goal of your sponsor and supporters is to have their colleagues agree to offer you investment terms.

What to expect: This will be a formal meeting and will include all available / relevant members of the VC’s investment team, which could be a group of up to 10 people. Expect a wide array of questions, often reviewing answers you’ve given previously. The meeting will have had access to your materials beforehand but, for some, this will be their first time meeting you.   You will need to check with your sponsor what ‘formal presentation” is required from you.  You will also be asked whether there are other possible participants in this round and where this VC fits in.  How much capital could they invest?

You can expect a swift indication after the meeting and a Term Sheet will follow.

What the VC is looking for:  Your sponsor will need a high level of excitement from the investment team, with a majority in favour of investing to proceed at this point. Be sure to give clear and detailed responses to the firm’s core questions (usually repeated multiple times by this stage) and any newly raised issues.  There is no room for prevarication, doubt, or vagueness, this meeting will give a final decision – you want it in your favour.

Step 4 — Legal & Diligence

This is when the due diligence takes place.  The Investors want to verify that the company they’re investing in is the same one you pitched.

What to expect: You will need to have a Data Room prepared. This will provide financial and legal documentation for your company. Investors may also want to validate your customer contracts and/or other major agreements. Expect a background check to verify founder credentials.

What VC is looking for: The VC does not want surprises — ideally everything they understood from your pitch is exactly what they find during diligence. A rapidly growing company may have some room for variability because things move quickly, but significant differences can kill the investment and be extremely negative for the company’s reputation.

Assuming the Due Diligence is passed with flying colours you are going into the fine print of a Share Purchase Agreement or SAFE.

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