Venture Deals

Investing in Special Purpose Vehicles (SPVs) should generally be avoided due to several potential consequences: 1. Tax extension for LPs: If you proceed with an SPV investment, you'll likely need to request that your Limited Partners (L...

Investing in Special Purpose Vehicles (SPVs) should generally be avoided due to several potential consequences: 1. Tax extension for LPs: If you proceed with an SPV investment, you'll likely need to request that your Limited Partners (LPs) file an extension because the K-1s from the SPVs are likely to be delayed. 2. Non-qualified investment: Such investments are considered non-qualified, and they will count towards your 20%, potentially affecting your overall portfolio balance. 3. Creation of a Blocker: To mitigate potential risks of dividends flowing through to your LPs, it may be necessary to create a blocker entity. 4. Poor Reporting from Portfolio Companies (PortCo): Investing through SPVs might result in inferior reporting from the Portfolio Company, which can hinder decision-making and performance evaluation. 5. Limited Leverage during Transactions: Having investments structured via SPVs could result in reduced leverage during M&A transactions or secondaries, potentially impacting negotiation outcomes and overall investment strategy.

There are a lot of factors at play here. For example, if the company raised an additional SAFE after your investment, the dilution scenario will be different. It also depends on the terms of the Series A. Consider using this Cap Table an...

There are a lot of factors at play here. For example, if the company raised an additional SAFE after your investment, the dilution scenario will be different. It also depends on the terms of the Series A. Consider using this Cap Table and Waterfall tool to runs some scenarios: https://foresight.is/cap-table/

A Deal Memo is a document designed to capture the rationale of the manager for doing a specific deal. The Deal Memo is used to explain your investment decisions to limited partners and to help the manager look back and refine deal making...

A Deal Memo is a document designed to capture the rationale of the manager for doing a specific deal. The Deal Memo is used to explain your investment decisions to limited partners and to help the manager look back and refine deal making logic based on how the deals perform over time. Deal Memos are normally developed over the course of evaluating an investment opportunity, starting when then manager starts to take an opportunity seriously. Most of the activity around writing and developing a Deal Memo is completed during due diligence, and the final touches are placed after the deal is completed.

Generally speaking, if contemplating SAFEs, convertible notes, or other types of convertible instruments which feature a discount, the discount does not factor into the portfolio company's valuation. These are typically held at cost (wha...

Generally speaking, if contemplating SAFEs, convertible notes, or other types of convertible instruments which feature a discount, the discount does not factor into the portfolio company's valuation. These are typically held at cost (what the investor paid) until a priced round where such instruments convert into preferred equity, though you will need to verify per the Fund's valuation policy.  When a convertible instrument is converted into preferred equity during a priced round (a preferred stock financing), the discount is applied at that time and typically affects the number of shares of preferred stock issued. Afterwards, the portfolio company's valuation is generally based on the price-per-share of the preferred stock of the latest financing applicable. 

An investor may be able to find out if a startup starts issuing SAFEs to other investors with a different valuation, but this will largely depend on the investor's relationship to the startup's founders, as well as the startup's policies...

An investor may be able to find out if a startup starts issuing SAFEs to other investors with a different valuation, but this will largely depend on the investor's relationship to the startup's founders, as well as the startup's policies on updating their investors. Following up with the startup in accordance with the investor's/Fund's valuation policy is also important.  However, there are generally no obligations for a startup to tell an investor whenever they issue a SAFE to another investor, regardless of valuation. The same may be not true after a preferred stock financing, where other types of notification obligations may come into play. 

A fund typically requires approval from the Limited Partner Advisory Committee (LPAC) to proceed with a follow-on investment into a portfolio that was an angel investment of the general partner because it's a conflict of interest. 

A fund typically requires approval from the Limited Partner Advisory Committee (LPAC) to proceed with a follow-on investment into a portfolio that was an angel investment of the general partner because it's a conflict of interest. 

As of now, deal reviews are for Decile Partners members only. Please visit Decile Launch for more information, and/or to apply.

As of now, deal reviews are for Decile Partners members only. Please visit Decile Launch for more information, and/or to apply.

The platform currently integrates with Gmail, Microsoft Office 365 and SendGrid. We also recently released a Zapier integration for deal-flow and we have a number of additional integrations on the roadmap. 

The platform currently integrates with Gmail, Microsoft Office 365 and SendGrid. We also recently released a Zapier integration for deal-flow and we have a number of additional integrations on the roadmap. 

Go to: 1. Dealflow 2. Deal Memos 3. Add a deal Memo The tool is designed to ask you important questions about the deal and provide a good baseline. I would encourage you to also update these questions based on the approach of your thes...

Go to: 1. Dealflow 2. Deal Memos 3. Add a deal Memo The tool is designed to ask you important questions about the deal and provide a good baseline. I would encourage you to also update these questions based on the approach of your thesis. 

VCs don't invest in LLCs. LLCs are pass through vehicles and issue K1s to all members, so all gains and losses are passed through to the fund, and the fund must pass them through to every LP. In addition to the MASSIVE accounting and tax...

VCs don't invest in LLCs. LLCs are pass through vehicles and issue K1s to all members, so all gains and losses are passed through to the fund, and the fund must pass them through to every LP. In addition to the MASSIVE accounting and tax headache, if a company is profitable and they don’t distribute dividends, VCs will need to report taxable income to their LPs.

A deal memo can help formalize your investment decision process. It provides an artifact to reference years later when you go back to look at your portfolio outcomes, exemplifies your process and values as a VC, and provides a vehicle fo...

A deal memo can help formalize your investment decision process. It provides an artifact to reference years later when you go back to look at your portfolio outcomes, exemplifies your process and values as a VC, and provides a vehicle for bringing on co-investors (or offering the deal to your LPs if there is room in the round). Hub provides a deal memo framework with template questions, ratings and attachments and links - this can be used for collaboration across your investment team, exported as PDF and shared as desired. Check out the VC Lab article: Venture Capital Deal Memo

Generally speaking, investing in non-voting shares of a pre-seed company is not recommended nor best practice.  Notwithstanding the traction and founder, if a Delaware domiciled startup is raising funding in a typical pattern, it typica...

Generally speaking, investing in non-voting shares of a pre-seed company is not recommended nor best practice.  Notwithstanding the traction and founder, if a Delaware domiciled startup is raising funding in a typical pattern, it typically raises on a SAFE (or similarly structured convertible instrument) - these will convert into Preferred Equity upon the company raising a priced round (Series Seed or Series A). Preferred Equity will most definitely have voting rights (in fact most of the time there is a separate lengthy legal agreement spelling these rights out). If such a startup is offering common stock to venture capital firms, with the added stipulation that these shares do not have voting rights, it warrants caution. 

The founders and employees of a startup must have vesting schedules to secure investment from reputable VCs. 

The founders and employees of a startup must have vesting schedules to secure investment from reputable VCs. 

A large percentage of pre-seed and seed investments are made with YC SAFE notes, in those cases the YC pro rata side letter is the accepted baseline, which provides a right to purchase shares in the following equity (conversion) round at...

A large percentage of pre-seed and seed investments are made with YC SAFE notes, in those cases the YC pro rata side letter is the accepted baseline, which provides a right to purchase shares in the following equity (conversion) round at the ratio of the SAFE investment to company capitalization. The YC templates are at https://www.ycombinator.com/documents For priced rounds (stock purchase) in the US, NVCA model documents are an accepted baseline https://nvca.org/model-legal-documents/ Regardless of investment vehicle, it is important for VCs to be fair in negotiation and especially not place demands on founders or create terms that could prove toxic to future fundraising efforts.

This is highly depended on the fund model and strategy. There is very big difference between pre-seed and seed. All factors considered here are some very high level guidelines: Pre-Seed:  ~50 companies Seed:         ~25 companies

This is highly depended on the fund model and strategy. There is very big difference between pre-seed and seed. All factors considered here are some very high level guidelines: Pre-Seed:  ~50 companies Seed:         ~25 companies

There are two types of anti-dilution protections for investors: full-ratchet and weighted average. They sometimes get used in priced rounds and are not typically found in Convertible Notes or SAFEs. These type of protections are not foun...

There are two types of anti-dilution protections for investors: full-ratchet and weighted average. They sometimes get used in priced rounds and are not typically found in Convertible Notes or SAFEs. These type of protections are not founder friendly. 

Sometimes, startups issue warrant coverage to sweeten the deal by providing investors with the opportunity to gain additional shares in the future at a lower price. Please note that most of the things you will 'hear' in the world of ven...

Sometimes, startups issue warrant coverage to sweeten the deal by providing investors with the opportunity to gain additional shares in the future at a lower price. Please note that most of the things you will 'hear' in the world of venture capital outside of Decile Base are wrong because there is little transparency in the industry.

There are a variety of factors that contribute to the investment timeline. For example, if you are the lead investor who is setting the terms, you will do significantly more due-diligence and try to help the company circle some more new ...

There are a variety of factors that contribute to the investment timeline. For example, if you are the lead investor who is setting the terms, you will do significantly more due-diligence and try to help the company circle some more new investors. On the other hand, if you are participating in a party round with no lead which is pretty common at the pre-seed stage, you may try to accomodate the rough timeline set by the founders and other investors. A typical process takes ~1 month. However during cyclical economic slowdowns or the holidays, it's not uncommon for this timeline to be extended to to 2 months or more.

It's possible for you to transfer your founder shares into the fund, however there are a number of issues with this approach. The shares are typically transferred at cost, and founders usually buy their shares at the onset of the company...

It's possible for you to transfer your founder shares into the fund, however there are a number of issues with this approach. The shares are typically transferred at cost, and founders usually buy their shares at the onset of the company at nominal price. The shares are typically common stock instead of preferred which means that they are lower in the preference stock. Finally, the company many not want to replace a founder with a fund on their cap-table because it may introduce diligence risk in future financings. 

"Rockstar" companies at the angel or pre seed stage are identified by their ability to quickly raise a subsequent round of funding. Since companies at this stage may not have any business or product traction, the ability to raise subsequ...

"Rockstar" companies at the angel or pre seed stage are identified by their ability to quickly raise a subsequent round of funding. Since companies at this stage may not have any business or product traction, the ability to raise subsequent rounds can be evaluated by (1) the pedigree of the Founder or founding team, (2) the quality of the accelerator or program that the startup has been through, (3) the popularity of the market that the startup is addressing, (4) the demand by other investors to participate in the current round, and (5) pre selling the next round to later stage investors and having initial signs of interest.

As a venture capitalist, you should not use any lockups or other exclusivity agreements with potential investments. These are one-sided arrangements that only favor the venture capitalist and can be harmful to the potential portfolio com...

As a venture capitalist, you should not use any lockups or other exclusivity agreements with potential investments. These are one-sided arrangements that only favor the venture capitalist and can be harmful to the potential portfolio company. Top accelerators, such as YC, have warned portfolio companies against entering into these arrangements as a result, and this can be harmful to your reputation as a VC is you using such agreements. The best alternate is to build a strong relationship with the portfolio CEO, encouraging them to save you position in the round based on the strength of your relationship and the assistance that you have provided.

You can use a standard template like the SAFE. We recommend that you do not modify template. 

You can use a standard template like the SAFE. We recommend that you do not modify template. 

We recommend that you do not attempt to draft a term sheet without a lawyer. However, you can use standard templates like the SAFE as long as you don't modify them. 

We recommend that you do not attempt to draft a term sheet without a lawyer. However, you can use standard templates like the SAFE as long as you don't modify them. 

The startup typically will retain their lawyer to manage this transaction because they want to control their cap-table. However, since it's a fairly common practice, the law firm can be pretty efficient here.  With respect to the fund, ...

The startup typically will retain their lawyer to manage this transaction because they want to control their cap-table. However, since it's a fairly common practice, the law firm can be pretty efficient here.  With respect to the fund, it really depends on what fund administrator and the law firm the firm retains. Warehouse transfers are included in the Decile Launch offering. However, it's not uncommon for other law-firms and administrators to charge for this service. 

Generally speaking, transferring a warehoused investment from an entity/company is fine so long as it is wholly owned by the investor.  Warehoused investments intended to be transferred to a fund should be invested into directly by the ...

Generally speaking, transferring a warehoused investment from an entity/company is fine so long as it is wholly owned by the investor.  Warehoused investments intended to be transferred to a fund should be invested into directly by the fund manager. If there are other angel investors investing into the same company/opportunity, they can invest via an SPV if they choose.

As a general rule of thumb, the minimum transfer of a previous angel investment into a VC fund should be a $25K position at cost. Transfers should resemble, as much as possible, what an actual investment looks like in terms of stage of e...

As a general rule of thumb, the minimum transfer of a previous angel investment into a VC fund should be a $25K position at cost. Transfers should resemble, as much as possible, what an actual investment looks like in terms of stage of entry, sector and amount. A transfer should never be less than 10% of the target investment amount of the final fund, so, if a fund is planning to invest $1 MM, then the minimum transfer should be $100K. 

If the agreement is between you and the company, then so will the warehouse transaction. 

If the agreement is between you and the company, then so will the warehouse transaction. 

I created the original SAFE Note. It was designed to replace convertible debt, which was being used for all early stage financings from 2002 to 2007. The original purpose and purpose still today is to be a fast and easy financing vehicle...

I created the original SAFE Note. It was designed to replace convertible debt, which was being used for all early stage financings from 2002 to 2007. The original purpose and purpose still today is to be a fast and easy financing vehicle for early stage companies without creating a preferred class of equity, which can cost tens of thousands of dollars.

Best practice is for warehoused investments to be transferred at cost. If there has been a markup, you could try and account for this markup, however please note: It is difficult to price the interest if there has not been a subsequent ...

Best practice is for warehoused investments to be transferred at cost. If there has been a markup, you could try and account for this markup, however please note: It is difficult to price the interest if there has not been a subsequent equity financing from the time you initially purchased the interest. If there has been no subsequent equity financing, you should engage a third party to determine the valuation. This may be difficult as you will need to rely on the portfolio company for certain information and the portfolio company may be unwilling to help as valuation information is sensitive. If there has been a subsequent equity financing, then you can use the last round's PPS. You will need to disclose the transfer price to prospective investors before they are admitted to the fund. If you are not transferring at cost, you will need to disclose how you determined the purchase price (ie based on last round's PPS, or third party) For these reasons, it is easiest to transfer at cost.

There are two types of Deal Warehouse companies for a fund: a Pipeline deal and a portfolio Investment. For the Pipeline deals, the manager creates a strong relationship with the CEO of a target company and works to align the closing da...

There are two types of Deal Warehouse companies for a fund: a Pipeline deal and a portfolio Investment. For the Pipeline deals, the manager creates a strong relationship with the CEO of a target company and works to align the closing date of the fund with the closing date of the round. It often takes longer to close the fund, so the manager asks the CEO to hold a position in the round after the round closes, which is ideal as it is closer in time to the next markup. These deals are shared with LPs by describing the business without sharing the company name.  For portfolio Investments, a manager personally makes an investment into the company and then transfers the investment at cost into the fund after closing. Ideally, the investment will be marked up before the transfer, and the manager gives the benefit of the markup to the incoming LPs. These investments are shared with LPs by providing the full details to get LPs excited by the opportunity to invest in the fund. 

A preferred stock that may be converted into common stock or another class of preferred stock, either voluntarily or mandatory at an agreed conversion ratio.  Other provisions may include dividends, liquidation preferences, voting or man...

A preferred stock that may be converted into common stock or another class of preferred stock, either voluntarily or mandatory at an agreed conversion ratio.  Other provisions may include dividends, liquidation preferences, voting or management rights, and anti-dilution. Recommended general references are "Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist" and "The Business of Venture Capital: The Art of Raising a Fund, Structuring Investments, Portfolio Management, and Exits"

An investment vehicle - a loan (at some nominal interest rate, but required) that converts into stock in the company when the company does the next Priced Round. This is done to: 1) avoid the legal overhead of a Priced Round and 2) avoid...

An investment vehicle - a loan (at some nominal interest rate, but required) that converts into stock in the company when the company does the next Priced Round. This is done to: 1) avoid the legal overhead of a Priced Round and 2) avoid the possibly challenging negotiation over the actual valuation of the company - kicking the valuation can down the road. There may a valuation cap or discount to compensate and incentivize these earlier investors for the additional risk.

The SAFE Note is a  Simple Agreement for Future Equity - a legal document template facilitating streamlined investments in early-stage companies, reducing the need for legal process and expense. Current templates are maintained by YCombi...

The SAFE Note is a  Simple Agreement for Future Equity - a legal document template facilitating streamlined investments in early-stage companies, reducing the need for legal process and expense. Current templates are maintained by YCombinator and available at https://www.ycombinator.com/documents The SAFE was originally created by Adeo Ressi to streamline early-stage investing with a standardized document, replacing bespoke convertible notes or priced rounds. It was popularized by YCombinator.

In startup investing, an SPV is a legal entity (usually an LLC) used to roll up smaller investments from multiple investors into a single investment, to provide access to a deal with a larger minimum investment. The person or entity mana...

In startup investing, an SPV is a legal entity (usually an LLC) used to roll up smaller investments from multiple investors into a single investment, to provide access to a deal with a larger minimum investment. The person or entity managing the SPV may charge fees or carry.

A company or investment fund that acquires and consolidates multiple smaller companies in a particular industry or sector. The goal of a roll-up vehicle is to create a larger and more diversified company with economies of scale, which ca...

A company or investment fund that acquires and consolidates multiple smaller companies in a particular industry or sector. The goal of a roll-up vehicle is to create a larger and more diversified company with economies of scale, which can then be sold or taken public.

"Pari passu" translates to "equal footing" or "on an equal basis."  In the investment context, it refers to situations where all investors have equal rights and privileges with respect to the assets and earnings of the company.

"Pari passu" translates to "equal footing" or "on an equal basis."  In the investment context, it refers to situations where all investors have equal rights and privileges with respect to the assets and earnings of the company.

Pro-rata rights give an investor in a company the right to participate in a subsequent round of funding to maintain their level of percentage ownership in the company.

Pro-rata rights give an investor in a company the right to participate in a subsequent round of funding to maintain their level of percentage ownership in the company.

Financial projections of a company's future performance. These projections are typically used to model different scenarios and assumptions, to estimate the future revenue, expenses, and profitability of a company and evaluate the potenti...

Financial projections of a company's future performance. These projections are typically used to model different scenarios and assumptions, to estimate the future revenue, expenses, and profitability of a company and evaluate the potential investment opportunity.

A priced round refers to a type of funding round where a startup company raises capital from external investors by selling ownership stakes (equity) in the company at a predetermined valuation. A priced round is commonly used in later st...

A priced round refers to a type of funding round where a startup company raises capital from external investors by selling ownership stakes (equity) in the company at a predetermined valuation. A priced round is commonly used in later stages of a company's growth when there is more data and information available to assess its value.

The investor who sets deal terms (which may include legal aspects) performs due diligence, organizes other investors. Best practice is for a lead to create a deal memo summarizing the key investment aspects of the opportunity. The lead u...

The investor who sets deal terms (which may include legal aspects) performs due diligence, organizes other investors. Best practice is for a lead to create a deal memo summarizing the key investment aspects of the opportunity. The lead usually, though not always is a significant (or largest) investor in the round, though minor investors also may take lead roles.

A valuation cap is the price ceiling at which a SAFE or convertible note will convert into equity (usually preferred stock) at a future financing round. Valuation caps are commonly used to bridge the gap between an early-stage investment...

A valuation cap is the price ceiling at which a SAFE or convertible note will convert into equity (usually preferred stock) at a future financing round. Valuation caps are commonly used to bridge the gap between an early-stage investment and a future priced round, providing a way for startups to raise capital while deferring the determination of an exact valuation until more information is available.

Refers to the maturity or development of a company. For example, a company in its early stages, such as a startup, may be considered a "seed stage" company, while a company that has grown and is approaching an initial public offering may...

Refers to the maturity or development of a company. For example, a company in its early stages, such as a startup, may be considered a "seed stage" company, while a company that has grown and is approaching an initial public offering may be considered a "later stage" company.

Bringing together multiple investors for a collective investment. The investors may invest individually or part of an organized syndicate investment vehicle (an SPV or Single Purpose Vehicle) where the organizer or facilitator collects f...

Bringing together multiple investors for a collective investment. The investors may invest individually or part of an organized syndicate investment vehicle (an SPV or Single Purpose Vehicle) where the organizer or facilitator collects fees or carry.

A "round" refers to a specific instance of funding that a startup company raises from external investors. For example, a company may raise money in a "seed round," a "series A round," and so on. These rounds of funding represent distinct...

A "round" refers to a specific instance of funding that a startup company raises from external investors. For example, a company may raise money in a "seed round," a "series A round," and so on. These rounds of funding represent distinct stages in a startup's growth and development, with each round aimed at securing capital to fuel various aspects of the business, such as product development, marketing, scaling operations, and more.

An implementation demonstrating a product for feasibility demonstration but generally not ready for customer deployment (which would be the Minimum Viable Product).

An implementation demonstrating a product for feasibility demonstration but generally not ready for customer deployment (which would be the Minimum Viable Product).

A Minimum Viable Product (MVP) is the most basic version of a product or service that can be created and released while still providing value to early users or customers. The primary goal of building an MVP is to quickly validate assumpt...

A Minimum Viable Product (MVP) is the most basic version of a product or service that can be created and released while still providing value to early users or customers. The primary goal of building an MVP is to quickly validate assumptions and test hypotheses about the product's viability, market demand, and potential for success with real-world users.

A follow-on investment is investing in a subsequent company fundraising round.

A follow-on investment is investing in a subsequent company fundraising round.