RTC #19: The venture capital deal assessment checklist

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  • a16z raises $7.2 billion, to be split across several new funds that will mainly focus on “growth” and AI

  • Canaan secures more than $100 million that will be added to its biopharma investment funds

🤿 The venture capital deal assessment checklist (Part 1)

The venture capital and business angel investment decision process in its structure is pretty straightforward and has stayed the same for decades (even the graph looks already pretty old 😀)

But (obviously) it is not the structure that remains this “black box” for many founders and entrepreneurs…

It is the “why” and “how” the investor side comes to their decisions about investing in a certain startup (and not in the other).

Screening Phase

Tailored investor approach…(rings a bell?). If not it might make sense to have a quick look at issue 17… 😜

👉 The ONLY investor list you will be successful with

REMEMBER: Preparation is key, and a strategic and tailored approach is crucial.

The following steps will help you make sure that you only approach relevant investors and pass the screening phase:

Tick the investor investment preferences:

👉 Investment preferences of the investors

• Geography: USA, Europe, Germany only, etc (usually LESS flexibility)

• Industry: Healthcare, FinTech, etc (usually LESS flexibility)

• Vertical: B2B, SaaS, etc (usually LESS flexibility)

• Stage: Pre-Seed, Seed, Series A, etc (usually MORE flexibility)

• Check Size: Up to EUR 2m, EUR 0.5-5.0m, etc (usually MORE flexibility)

• Other: Revenue or profitability milestones, leading vs. co-investing, etc

➡️ Sources: Websites, Crunchbase, Pitchbook (best but expensive), LinkedIn lists (as a starter).

For a tailored investor approach include the following:

👉 Relevant investment(s) (meaning in your vertical, geography, size, etc.)

👉 Research your contacts on LinkedIn and see who could provide you with an intro / is connected

👉 Relevant investor press releases/participation in conferences

Evaluation Phase

The evaluation phase can be unique for each investor or investment manager defined by individual preferences and decisions about what feels more important to each of them.

BUT: What remains constant, however, are certain dimensions and questions that form the framework for their investment decisions. Let's take a look at what these are!

And yes, in the end, all investors want the same 😆 

As usual, a structure is also great, so let’s start with a simple summary of key dimensions:

1. Status quo company and founders (Today)

2. Potential (Today)

3. Key risks

4. Deal and transaction-related topics

👉 Today we will have a look into 1.+2.

(And don’t worry, I will cover 3.+4. together with the Negotiation Phase in one of the next issues)

1. Status quo company and founders

This first dimension sets the basis for ensuring that, as an investor, I understand the business at its core, the status quo, and the qualities of the founders.

2. Potential

The tricky part with this dimension is that it differentiates very much from one investor type to another. While a venture capital investor is looking for a “fund returner” as the potential required for an investment, a strategic investor or a business angel might have a different view, or let’s call it a “risk/(return) potential” perspective.

And how does this look in “real life”?

At my investment firm Beyond Tomorrow, we have developed the following practice: We created a deal sheet as our “deal assessment checklist” for all deals in the Evaluation Phase.

👉 It forces us to think through every single question

👉 The rule is to provide precise answers in not more than 1 or 2 sentences

👉 If we do not know one answer it is already a bad sign

📖 Infographic of the week

The world economy is in one graph. How long did it take you to find your home country?

📅 Calendar of main VC events in the upcoming weeks

“Networking is a lot like nutrition and fitness: we know what to do, the hard part is making it a top priority”

April
• AVPN Global Conference 2024 | Abu Dhabi | Apr 23-25
• Startup Grind Global Conference 2024 | San Francisco, US | Apr 23-24
• VC Platform- Global Summit ‘24 | New York, UK | Apr 24-26
• TechCrunch Early Stage 2024 | Boston, US | Apr 25

May
• Data-Driven VC Summit 2024 | Online | May 5-8
• Private Debt Investor Europe Summit | London, UK | May 7-8
• Emerging Founders | Warsaw, Poland | May 7
• EU-Startups Summit | La Valletta, Malta | May 9-10
• 0100 Conference CEE 2024 | Prague | May 14-16
• Impact’24 | Poznan, Poland | May 15-16
• Mashup | Malmo, Sweden | May 15-16
• Tech.eu Summit | London, UK | May 16-17
• Finovate Spring | San Francisco, US | May 21-23
• Infoshare | Gdańsk, Poland | May 22-23
• Viva Technology | Paris, France | May 22-25

👉 Get the full list of events in 2024 here

This was it for today.

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See you next Tuesday,
Stephan 👋

Issue #19 | 23 April 2024