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2. The Formal Presentation

Typically if you pass the Initial Review your company will be given the opportunity to make a formal presentation in the Venture Capital Firm’s office. Your presentation is normally limited to one hour so you must be very prepared. Usually 30 minutes will be for your presentation and the 30 minutes for the Venture Capitalists questions.

By the time you get to this presentation the Venture Capital Firm will have completed some basic research on your company, the industry, any notable competitors, the investment opportunity, and the exit strategy.

Most Venture Capital Firms look for an exit strategy of:

  • Going public through an Initial Public Offering (IPO)
  • Selling or merging with a company that is already public
  • The ability to generate significant cash flow to pay out the investors
  • The company is already public and offering shares at a discount

In this presentation you must show a willing to work towards one of these exit strategies and/or have one clearly defined and supported. The formal presentation allows the Venture Capitalists assess your management along with their ability to create an impressive presentation and to handle difficult questions. If the overall impression of the Venture Capital Firm is good, your company may proceed to the next step.

3. Term Sheet

If your make it this far the venture capital firm will normally draft a term sheet outlining the conditions under which the venture capital firm may invest. Terms are always contingent on the completion of due diligence. The term sheet should include the initial valuation of your company based on your industry public, private and M&A comparables.

4. Due Diligence Investigation (See checklist beginning on page 34)

This is an extensive due diligence investigation will include your business plan, initial formation, financial information, all organizational documentation, capital and legal structure, industry and market information. They will look into manufacturing and producing processes, your research and development, all past and open contracts, any pending events, IT and HR structures, the protection of your intellectual property, compliance with all laws and regulations, and the proper insurance is available.

Extensive background checks are performed that include your company and personal credit reports. Criminal and legal background checks are run. Manager’s resumes are verification. There will be SEC and NASD securities inquires of active principals and managers. Management will be required to certify that they have not been involved in any illegal activities, injunctions, suspensions or illegal proceedings.

The investigation will include possible intellectual rights problems, technology risks, key personnel losses, competitive analyses and the possible effects of the political, social, technological events. Your suppliers, customers, and banks will be questioned. Then a due diligence summary is compiled that highlights what was discovered. This summary will also include any are as that were found to be missing, or questionable.



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