Investment process

PE/VC point of view

Understanding how investment process works from startup’s point of view is important. But what is also important is PE/VC side of the deal. This guide on how PE/VC sides of the investment process works is useful for startup founders to understand that it is also not easy for PE/VC investment teams to defend any project and get approval from their investment committees. It requires time, effort and a lot of management work, especially guiding the startup management team through the deal process from kick-off meeting to money transfer without killing each other in the process.

Ongoing process
Deal sourcing

Industry analysis: identification of segment opportunities and the future potential of the subsegments, global and regional trends, fit with the investment guidelines of the PE/VC fund.

Identification of capitalization and valuation principles, peers and benchmark company analysis.

Deal generation: identification of potential investment targets and pipeline generation.

2-3 weeks
Initial review/screening
  • Fit within the overall pipeline of the PE/VC fund (investment criteria).
  • Preliminary assessment of development strategy, past performance, identification of risks and opportunities of the project that includes:
    • Long-term vision and urge to grow
    • Team quality and managerial skills
    • Commercial orientation of the project
  • PE/VC fund contribution to assure profitable growth and value creation by mitigating risks and reinforcing opportunities.
  • Negotiations and signing NDA (if needed).
  • Preliminary valuation
  • Internal approval: internal committee approving Due Diligence expenses.
4-7 weeks
Due diligence and deal structuring
  • Financial, legal, business, market, audit, tax, technical, and environmental due diligence.
  • Risk analysis: product risk, market risk, technological and entrepreneurial risks.
  • Concept paper and business plan development.
  • Valuation (sometimes external consultant is hired).
  • Deal structuring and signing of Term Sheet.
3-4 weeks
Approval process
  • Sending information to Investment Committee for analysis. Investment committee usually is made up of LPs representatives and advisors (from 3 people).
  • Presentation of the project to the Investment Committee by investment team.
  • Investment committee decisions:
    • Deal is approved
    • Deal is not approved, as some deal aspects need to be restructured/changed (for example, new covenants to be added), so Investment team returns to Due diligence and deal structuring process to present the project and deal after the changes are made
3-4 weeks
Closing and signing
  • Legal structuring of the deal: either internal legal team or external advisors prepare legal documents that includes the following documents:
    • SHA (Shareholders’ agreement)
    • SPA (Share purchase agreement)
    • SAFE (Simple agreement for future equity)
    • Other documents (if required)
  • Signing of legal documents (which contain CPs for money transfer)
Money transfer
Post-investment activity
  • Help in shaping the direction of the portfolio company:
    • Strengthening company’s corporate governance (setting up the Board of directors with several representatives of the PE/VC fund)
    • Enhancing marketing, accounting and other business lines by providing relevant contacts/support
    • Assisting in further capital raising