Analysis of VC process for start-up companies

When I talk to entrepreneurs, I'm often asked about some insider about VCs. If we are concerned about the amount of investment traded, so how many meetings we have, how often we do an in-depth research and how many companies we invest in the start-up companies, etc.

In my opinion, if VCs can keep a certain amount of transparency externally, they may be able to offer some help to startups. So this article will elaborate on some of the things from the initial meeting to the final successful investment.

In general, if 10 investment transactions are to be made, VCs will audit about 1200 companies. These 1200 companies may come from many sources such as networking, investment conferences, in-house research, portfolio referrals, seed investors, etc. In these 1200 companies, we will choose about 500 companies to arrange the relevant investment team staff to meet with them face-to-face.

At this meeting, we first focused on the background of the founders of the company. We will evaluate their work experience and ability to determine whether they can grasp their own opportunities.

Of course, roadshow is also very important. We will be concerned about whether the roadshow is concise and attractive.

In addition, the absolute part of VC companies in the investment of a company, will consider whether the company and its own portfolio of companies will have competition.

Personally, if I don't want to meet some startups, the main reason is that the entrepreneur is not popular with people I trust.

Investment conference: Each year, the general VC will carry out 500 face-to-face investment meeting, at this stage, about 10% of the start-up company will enter the next round. So what should startups do to make VCs willing to go further and take the time to be cautious about themselves?

First, most of the early venture companies are looking for companies that have an ideal fit for their products and markets, when a company meets this requirement, we also want to confirm whether the company can solve a real problem, a practical problem that does not usually have much to do with Silicon Valley, because in the Bay area of Silicon Valley, the customer is not very much, And many founders are good friends, that is, in Silicon Valley it is impossible to verify whether a product actually owns the market.

In addition, at the investment conference, there is a reason for poor communication, as is often the case: a start-up team will say they can earn 50 million dollars in five years, but it is hard to elaborate on how they will get their first $1 million dollar "first bucket of gold".

Deep research: In this 500-and-a-year meeting, a medium-sized VC company will probably carry out in-depth research on 50 of them in more than two years.

In-depth research involves a lot of work, such as product review, customer referrals, executive team referrals, financial modeling, market analysis, and competitive analysis, and so on. At this stage, if there are some customers with high frequency of interactive products, the effect will be better.

In the past few years, VCs have focused on companies whose annual income growth rate is at least 100%. However, in the course of the preliminary meeting, many companies do not meet such standards, so VCs will lose their confidence in their investment.

VC companies will be very concerned about the loss of a company's customers and the relationship between the company and its customers.

Investment: A typical medium-scale VC company will invest in 10 companies in 50 of its own in-depth research. Why are these companies able to stand out in the end? Some of these elements are important, such as effective customer access, or the company has a very attractive CEO who is willing to follow him. If a company's employees are unwilling to follow the CEO, the company's investment could be at a red light.

In addition, the market size is also very important, as far as we are concerned, we hope that the company can provide a more reasonable way to tell VCs that they are capable of earning 100 million of dollars in annual income. If it's a business that focuses on delivering solutions, then you'd better have a market size of 300 million dollars, because once the company becomes the industry benchmark, then they get 30% to 50% of the market share. And for a cross-sectoral solution, they can solve cross-industry pain points, then the company may need 1 billion of dollars in market size, because in different industries, each market leader may have only 5% to 10% of the market share.

In reality, perhaps only 1% of the founders of startups have finally got venture capital, and the content described in this article may help entrepreneurs to optimize their own investment strategies. If the first meeting is fruitless, good VCs will provide some special feedback to startups. The vast majority of VCs will keep in touch with the founders they have met, and it would be heartening if the future "failed" start-ups changed or become more competitive.