| Process/
Stage | Founder Pitch To Prospective Investors | Investor Indicates Real Interest In Investing Into Business | Investor Due Diligence Process | Signing Of Transaction Documents | Money Transfer Into Startup’s Bank Account |
---|---|---|---|---|---|
Duration | Varies (May go up to 9 months) | 2 weeks - 1 month, depending on the speed of the VCs in issuing a standard term sheet or a customized version | 1 - 3 month | 2 - 4 weeks, depending on how many shareholders | |
Documents and Materials | Pitch Deck and investment data room | Term Sheet | Evidence and proof that supports | Transaction documents (e.g., SHA, SSA, Constitution) | Transaction proof |
Why does the process take time? | Founder’s readiness: | ||||
• Founders are not talking to the right investor | |||||
• Documents are insufficient in providing greater clarity around the business to make a thorough investment evaluation | |||||
VC’s investment opportunity evaluation: | |||||
• Founders are not talking to the right investor | • Before term sheet is issued, investment opportunities usually need to get a full buyin by the Investment Committee (which consists of the General Partner and Limited Partner) | ||||
• Some investors prefer to use standard and clean terms to invest fast and in volume (especially early-stage) | |||||
• Some prefer to make sure terms and conditions are spelled out and custom to the context of the investment and risks involved (especially priced round or more complex deal) | Depending on the stage and size of the fundraising, varying degrees of assurances are sought by investors. Having readily prepared data rooms with documents can lead to a smoother process and generally the longer the entity has existed the more documents are needed to be prepared. This extends also to the entire group of companies, assuming there are multiple companies under the control of the main company. Due diligences are usually done on 3 main aspects; 1) legal due diligence, which ascertains that the company is properly incorporated, there are no violations of local laws, agreements and disputes with customers or vendors. This usually also includes checks on the founders of whether individually there are any material cases or breaches of the law, whether disclosed or undisclosed. 2) financial due diligence which verifies the assumptions used in the business case being projected, the historical numbers and metrics, and if sufficient risks mitigation is in place. 3) technical due diligence which involves reviewing IPs, codes, copyrights, trademarks, and technical capabilities and specifications of the underlying products or assets that is critical to the business and whether this is sufficiently protected, defendable and valuable. | Going through legal documentation and comments from various parties and stakeholders needs a process in which typically the founder or a key person from the business has to take control to get all parties in sync. Multiple readings and page-turning is required to align all parties of their interests and risks. This also involves other 3rd party service providers such as lawyers, accounting firms, company secretaries on top of existing shareholders, incoming investors and also the founding team. | Closing conditions and conditions precedents (if any) all need to be fulfilled prior to any wire of monies is to be done. Ensuring that this process has a checklist and each task has an owner and deadline to close is critical as these conditions are time-bound based on specific clauses within the transaction documents. |