Timeframe for Review of Projects

DFN: Pretty insightful, well written, entertaining and informative. I’ve signed up for RSS feeds to my google reader from Mr. Jozefak.

Here’s How My VC Timeframe Works (as oppossed to yours!)

By Paul Jozefak, The Babbling VC
10/18/2009
http://babblingvc.typepad.com/pjozefak/

This is less of a rant and more so a service announcement. It’s become clear to me that often, entrepreneurs expect a VC’s day to revolve around them and their wishes. I’m referring very specifically to the time from when said entrepreneur sends in his business plan until next steps happen. I’m going to generalize a bit but want to give you an idea of what happens with your business plan once you submit it to a VC fund. I’ve put in general timelines:

Day 1 through Day 5:

Now I am presuming you’ve read my other posts about how to get your business plan in front of a VC. I won’t go into those specifics again. So, let’s presume you’ve just mailed your business plan to me or it’s made it’s way to my in-box via proper channels. Depending on how much time I have, I will take a quick scan of your executive summary. Preferably you’ve had someone I know pitch your idea to me and make the contact. This way, I generally know what your business case is. My initial scan is to determine which investment manager in my fund I want to put on this deal with me. Every VC partner usually has a favorite in their team whom they tend to work with more than others. We have three different IM’s and each has his strengths. We try to match them up with the deals we pursue or vice verse, work on the deals they source. So, the investment manager is determined by me and he receives your business plan (or was your key contact and your internal champion when it comes to me). It goes into a pile of other business plans he is reviewing/working on. I determine what priority this business plan gets. If I’m hot for the deal, I’ll tell them to get on it immediately. If I’m not too hot on it, I’ll ask that I get feedback in a couple days. One way or another, I also want his opinion on it and need it as the IM will take a much deeper dive into the case, reviewing the market, reading about the product and technology and giving me an extensive view of what you’re up to. I like to listen to my IM’s opinions and thoughts. They can and will sway me. These are guys often much smarter than myself on many issues. Remember this when figuring out how to get to a partner.

Day 6 though Day 12:

If the IM and I decide we want to pitch the deal to our partners, the real process starts. Our IM will dive into a due diligence. This isn’t the extensive full on due diligence we need to invest. This is the due diligence I need to pitch to my partners that I want to pursue this deal. You’ll be invited to our offices to pitch the IM and myself. We’ll review the market, start talking to people we know to get feedback, we’ll play with the product (if possible) and we’ll review the numbers for a sense of validity (or sanity). Since we pitch a bunch of deals across three partners at our weekly partners’ meeting, you may not be able to get in the door right away. It usually takes at least two weeks for us to discuss the deals amongst ourselves. We’re then pretty digital on our decision. It’s a yes or no. If yes, then the real due diligence starts. If it’s a no, the IM and I determine whether we want to give one last push but usually a deal is then dead. Our goal is to be fast here to make "go, no-go" decisions. Scheduling of meetings here tends to be the biggest time drag.

Day 12 though Day 20:

Once we start pursuing the deal, we’ll schedule a meeting at your offices. We try to spend at least one day (usually more) with you and your team, getting to know about the management and employees. We’ll want to go much deeper on the questions which remain open. At the same time, we’ll be doing research on our end and preparing a termsheet. At this point, we tend to move at your pace, meaning we work around the entrepreneur’s schedule to get time with them. If you involve lawyers at this point for the termsheet, that 12-20 range up there can expand quite a bit. Nevertheless, we try to push to stay within this timeframe so as not to lose momentum. Finally, we schedule a pitch at our offices to my other two partners. This is for final approval to do a deal. If you get approved at this meeting, I have the "go" to close the deal without further involvement of my partners. They’ll be kept informed as to what’s happening of course, but I’ll be driving the deal from here to close (or break-up). Make sure to try to get this meeting done as early as possible, since in our case, this is a key step to having the process continue moving.

Day 20 though Day 40:

In a realistic scenario, most deals take two to three months at least. There is no rule to this as we’ve done deals in two weeks from start to finish. We’ve also had deals take significantly longer than 6 months. Each case is different. Some deals also have significantly more competition and this obviously changes many things. During days 20 to 40 we’re usually negotiating the investment documents, completing our reference calls and market analysis, interviewing potential key hires and basically tracking how you run your business and whether you’re delivering on things you promised.

This is a rough estimate of how much time it takes. Like I said, each deal is different and I’ve left out the nitty gritty. This is simply how it works for us. Some VC’s do things in a different order. Basically, every VC is going to have the same parts to the process but will take longer on some things and less time on others. We try to keep the negotiation short. Draw this out and things get sloppy. We don’t like to rush our due diligence though when not necessary. This is where we’re learning as much as possible about your case and you. Yet even here, at times there just isn’t that much to look at since we’re usually in deals pretty early. One way or another, I hope this helps to give you an idea of what to expect when starting the discussion process with a VC.

Note: "days" referred to above are business days!


Doug

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