William Poon: Cornell Tech FM
Original Article: BRV Investment Process
Typically in a screening call with a startup founder, the question of our investment process will come up. This is a great question for all founders to ask investors and for investors to answer for founders. It helps everyone get on the same page in terms of what each party can expect in their working relationship.
I’ll dive into what the investment process at BRV typically looks like so that founders can see what they’ll be working with and for others who are interested in how a student run fund manages it.
- Deal Sourcing
First off, a fund manager will come across a deal. This can come through a variety of methods. We might see a startup pitch at a demo day, get introduced by a mutual connection, or hear from a founder via Twitter or LinkedIn. We will typically ask for a pitch deck in an email so that we can do an initial deck screen. This helps us to get a general idea of what the startup is and whether we’re interested in having further conversations. Each step in this process helps to filter out investments that might not be right for us. If it isn’t right for us but perhaps might be a better fit for another investor, we might pass it along to others in our network. We might choose to pass on an opportunity very quickly because the startup is not in the US, or it’s raising a round that is too large for us, or perhaps it’s just not ready for an investment yet.
2. Screening Call
Once we’ve gone through the pitch deck and would like to continue the conversation, we’ll schedule a screening call with the founder. This is a great opportunity for the investor to speak with the founder to better understand the startup and ask any top of mind questions. The best questions to ask are the ones that would reveal any potential red flags for the startup. Questions could include how much of the product or service has actually been developed so far, what has the customer discovery process revealed so far, and have they even thought about their competition in the market. It also allows the founder to communicate their vision in a way that a pitch deck might not be able to.
3. One Pager
After the screening call, the fund manager will typically draft a one page memo that has high level information on the startup including a company summary, industry, investment details, information on the product or service, and any general thoughts from the screening call. The fund manager will then share the one page memo with the rest of the fund managers, who will take a majority vote on whether to allocate resources to conduct deeper due diligence on the startup.
4. Due Diligence
If it has passed this majority vote, the fund manager can partner up with other fund managers or associates to conduct the due diligence required. This team of up to 4–5 people will do the research needed to compile an investment memo that would come in the form of a presentation deck that would be presented to the investment committee, which is the entire team of fund managers and our two faculty advisors. The team will conduct this diligence in about the time of a month or so. The diligence looks into various areas of the startup to help the fund managers decide whether this is a good investment opportunity.
The areas will be discussed in another blog post but on a high level will include topics such as the product and technology, the management team, financials, interviews with industry experts and other VCs that cover the specific area, and go-to-market strategy. The reality is that for early stage startups that we look at, there will be less concrete information available about the startup and will require thinking about whether the management team has the experience and skill required to develop a product that the market desires, take that idea to market, and if the market itself will actually accept the founders’ original hypothesis.
5. Investment Committee Presentation
Once this due diligence has been finished, the team will present their findings to the investment committee. After the initial presentation, typically there will be a lot of follow on questions to which the team will have to go through and find the answers for. After gathering the answers, they will then present their findings again to the investment committee. After which the committee will make a majority vote on whether to move forward with legal due diligence.
6. Legal Due Diligence and Closing the Deal
Legal due diligence takes about a week or so and looks through the investment documents, the cap table, any IP that the startup might own, and determine if there are any legal red flags that would negatively impact the startup and investment. If this has been cleared, it will be presented to the investment committee again for another confirmation. After a final confirmation from the committee and the faculty advisors, the advisors will make sure that there are no conflicts with investing in the startup for Cornell University and then proceed with the closing and wiring process together with any other investors in the financing.
This process can be very involved but it allows the fund managers and associates to go through the experience of learning about startups and thinking from the perspective of investors as to what would constitute a good startup investment. Going through this experience has been helpful to many of the fund managers who have gone on to go into Venture Capital or Corporate Development, where they continue to do this type of analysis, or perhaps even as a founder themselves or working at a startup since they’ll know what questions investors will have and what they’re looking for.
We hope that this brief overview has been helpful to you. If you have any questions, are looking for funding, or would like to collaborate, please reach out to our team at email@example.com