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The Venture Capital Process
By: J. Skyler Fernandes
• 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
• 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
• 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
• 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
Funds, Angels, A
ts & Partners
Rising Startups /
Top Colleges /
Startup / VC &
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.
– 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
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
Sign NDA if
Venture Fund Structure
Venture Fund Management LLC
Venture A LLC Venture B LLC Venture C LLC
Portfolio Co. A Portfolio Co. B Portfolio Co. C
80% = LPs
20% = GPs
Mgmt Fee: 2%
$ Invested $ Invested