How we deal with the investment process at SpeedUp Group

To all the founders out there that are wondering what they will need to deal with when entering the investment process, we want to give more clarity about how we do it at SpeedUp Group.

The below timeline presents how we — at SpeedUp Group — actually go from pitch deck review to final decision and deal closing. We understand that it’s not that obvious to all the startups’ founders how internal VCs’ decisions are being made so we hope we can make it a bit more clear. Anyway, please remember that each fund has its own individual step-by-step process. Although there are some common elements, what we present cannot be taken as a standard for the whole VC market.

SPEEDUP GROUP’S INVESTMENT PROCESS’ STRUCTURE:

  1. Screening stage

We base our deal flow on both inbound and outbound reaches, but either way we ask teams to share their investment pitch deck. Its review helps us to better assess whether there’s a match with our fund, so it’s worth making sure to attach the deck during the first contact — it makes it faster for us to be back with the feedback. Nevertheless, we need a few days to go through it. Afterwards, we usually provide the team with a bunch of questions or invite founders for an introductory call so we can get to know more about the potential for cooperation. At this stage we need to verify formal things as they determine whether we can invest at all. Therefore, we’d like to know what’s the round size and its planned structure, development stage & development plans, company’s legal form and its capitalization structure and probably we may have a few more questions that depend individually on the given company’s business profile. We respect the team’s & our time and we believe such verification helps to understand from the very beginning if that makes sense to involve the other side more in the process.

2. Analysis process

After the positive formal verification, we need to dig deeper into the business opportunity. Thus, we run the given sector diligence, search the market size and its trends, check out the product ourselves, ask for the financial plans & predictions, verify potential exit opportunities and future turnover, but also assess the business risks as well as potential development scenarios. In order to do it, we ask for the startup data room’s access, but at the same time we organize a few calls / meetings with the team also including at least one or two of our fund’s Partners.

The analysis process additionally includes some reference calls or talks with existing customers of a given startup or consultations with third parties from our network. We want to make sure we understand the business well enough not only to make the right investment decision, but also to be able to support its growth as it becomes part of our portfolio.

The analysis process lasts longer than the screening stage as it naturally involves more data to be processed and more people from our team being engaged. The speed of processing though depends on a few elements including (1) our internal expertise in a given field (how much of the sector understanding we need to make up on), (2) communication effectiveness and the quality of materials provided by the startup’s team, (3) accessibility of our external experts.

The materials gathered within this step comes together in the form of the investment recommendation presented to all the fund’s Partners and stands as a strong foundation of the decision-making process. The recommendation is then part of a discussion that takes place during the initial Investment Committee.

3. Initial Investment Committee

The initial investment Committee is about getting the investment opportunity closer to all the fund’s decision-makers. The meeting also involves all the startup’s team members so they can present their business vision and its development strategy. It’s also about better understanding how we, as SpeedUp Group, can support the company’s value building. It’s definitely a time for the startup team to evaluate whether we’re the right venture partner, and for us to assess whether it’s the right deal.

As the meeting usually involves from 6 to 10 people, we need around a week to plan it and put all the calendars together for the slot. We don’t mind doing it remotely as it can also speed up the organization.

If any party has decided to pass on the opportunity the committee meeting is being followed with a Term Sheet offer.

4. Term Sheet

The Term Sheet proposal is the reflection of our will to work with the team! Of course, it’s about the deal’s conditions, but we intend to keep this document simple and short (around 3 pages) so as not to spend too much time on negotiations at this stage. There is a time for that when discussing the Investment Agreement. It’s worth being aware of that intention, so we can make this process go smoothly and quickly! Nevertheless, we’re more than happy to explain every legal regulation included in our Term Sheet proposal, so everyone signing it can evaluate it properly. We always encourage teams to ask questions as long as they feel comfortable with all the terms.

5. Investment Thesis / Due Diligence

The post Term Sheet stage consists of (1) Investment Thesis preparation and (2) Due Diligence process.

a) It’s the documentation needed for the Final Committee organization. It should stand as a clear statement how the particular deal will create a value for us as a fund. Then it requires putting together all the business information with all the formalities about the deal structure. The work & time is on both our investment team and the startup founders — we need their support to make the Investment Thesis presenting a strong company’s development vision and how adding the business to our portfolio will make the company more valuable.

Nevertheless, the crucial element here is the due diligence process. And it’s also that process defining the timeframe of this stage as it’s more complex and usually takes longer than step (1).

b) Since the Term Sheet is being based strictly on declarations about the business and the company, the due diligence process is about turning them into validated facts. We need to make sure there’s no obstacle to finalize the investment and identify whether there’s any issues that need to be fixed before we join the company structures. As a VC fund, we’re backed up by private investors that we agreed on to check out particular topics before making a final investment. That includes evaluation of technology and its architecture as well as financial and legal aspects.

When dealing with the DD process we rely on external experts that provide teams with a list of required documents to be shared. The documentation review itself is being done by external consultants, but it’s rather a collaborative process that requires team’s engagement not only in materials delivery, but also when some unclear issues need to be explained or if any corrections occur necessary to be made.

Depending on the company’s history size and its structure complexity, but also on the materials’ quality and files’ organization, the due diligence can take from 2 to 6 weeks. It’s hard to be precise in assessing it, but it’s fair to admit that it’s definitely one of the longest investment process’ element.

Nevertheless, once the due diligence reveals all the business’ strengths and weaknesses, the smaller and bigger risks can be managed the right way. That also makes it easier and faster to run due diligence when doing another fundraising. So although it’s a bit time-consuming, we find it highly beneficial for all the company’s shareholders and necessary to be done sooner or later.

6. Final Investment Committee

As all the formalities are being confirmed and there’s no obstacle to finalize the investment, we organize a Final Investment Committee including some or all of a given fund LPs. This meeting is basically about getting the final investment acceptance based on the investment thesis and due diligence results. It’s being quick itself, but we need to plan it in advance so all of the interested parties can participate. Anyway, not to waste time, usually we parallelly work on the Investment Agreement.

7. Investment Agreement

As the Term Sheet itself is a short and intentional document, the Investment Agreement extends each of the issues so they’re being precise and clear. There must be no space left for interpretation. Thus, the investment agreement negotiations process is also when the lawyers get in. But it’s important not to fully give it away to lawyers — both startup and fund teams should stay involved in negotiations as still many issues can be figured out directly between the parties. We stay open to accurately explain every document’s record, so the team feels comfortable with the agreement. Of course, it’s a two-sided process and its length depends on the team’s engagement as well!

As the agreement is completed and eventually signed, there’s only the investment transfer left to be done to complete the process.

8. Investment transfer

What can be said here? As the money is in the bank account we can start working hard to grow the business together. We believe that the investment is not a goal itself, it’s just a tool to make the company successful. And when it’s done, there will be celebration time.

The presented process is just a frame as at the end, each process is somehow individual. As mentioned above, there are many factors influencing the process’ length such as the quality of materials we receive, our expertise level in a given field and both sides’ engagement. Also, if there’re more investors participating in the round, it might take longer to close the deal as each fund has its own separate decision-making process.

Nevertheless, we do our best to practice the #FoundersFriendly approach, and therefore we keep improving our investment process. We’re aware that there are still some bottlenecks on our side but we keep working on their elimination!

If you’re just about to reach us and you’re ready to start the investment journey with us, please feel free to use this email address: apply@speedupgroup.com We’re waiting to get to know your business and check out whether we can fight for its success together!

We’re a leading group of venture capital funds, investing in people who develop new technologies 🚀 www.speedupgroup.com