3) DRILL DOWN
This third phase happens when a firm decides that it wants to properly consider a startup as an investment opportunity. It can be triggered internally by the Capture phase - the background ‘farming’ of data uncovers a company, traction, or something else that makes it clear that now is a great time to invest. It can also be triggered externally - the CEO starting a fundraising process or a signal that comes in from some other source (like via the notorious gossip-network of our industry!)
In most venture firms this process will be led by a decision-maker or ‘deal lead’ (although I hate the word ‘deal’!). That person might work on their own or they might have more people helping them – analysts, associates, principals, product managers, engineers and other experts in specific areas. They will start with the CRM data they already have and then overlay the current situation of the company (starting probably with a pitch deck if it exists or a conversation with the CEO and other key people). They are looking for the things they always look for and that I covered in a previous post. Some of these areas are easy (examples include referencing customers to ensure the product stacks up; analysis of key metrics to understand growth in terms of revenue, customers, users, engagement; updating the firm’s view on the competitive landscape). The lead investor will often then have one or two areas they really feel they need to believe in to get to an investment. They will focus an inordinate amount of their time on these areas - digging in, meeting all the relevant people on the team, talking to external experts.
All of this process is usually captured in the form of some kind of investment memo (some firms literally write a word doc that gets printed out, others have Notions with links to all the data but the aim is the same: provide a single place to understand everything we know about company X).
As an entrepreneur: This is the most important phase of any successful fundraising process.
The thing which is most likely to get you a great funding round is having built a great company (obviously), but focus and great performance in this phase can help a struggling company still raise money and allow a great company to more than blow the doors off. Understand what an investor wants to know about your company and make sure each area is covered in your summary material. Make sure there are also deeper dive materials into each of those areas and have people other than the CEO who can also talk to each. That way, for example, if an investor wants to dig into sales, you can do a pipeline deep-dive, share a presentation on your go-to-market process and do it all with your VP of Sales alongside you. While this is a ‘sales’ phase, I advise people against over-selling. Good investors (ie the ones you actually want) will cut through that - instead, it’s more about being prepared, concise and targeted.