Venture Deals

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Can I invest in SPVs using my VC fund?

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May 14, 2024

Could my venture capital fund be utilized for investments in Special Purpose Vehicles (SPVs)? Could I invest in pass-through entities like Special Purpose Vehicles (SPVs) through my venture capital fund?

Top answer:

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...

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Does a post money SAFE got diluted with the Series A?

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Mar 14, 2024

I would like to know the step-by-step process. Scenario: I invested in the pre-seed round via a post-money SAFE of $100k at a $1M post-money CAP valuation. The startup reached Series A and raised $5M at a 50M valuation. How much company partici...

Top answer:

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...

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When is it best to create a Deal Memo?

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Jan 14, 2024

Top answer:

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...

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How should a portfolio company's valuation be updated when there there is a discount in the deal terms?

Asked by:
Community Member
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Dec 05, 2023

Question reformulated for clarity, but of course let us know if it does not address the original question. 

Top answer:

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...

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How can an investor know if a startup issues a SAFE to another investor with a different valuation? How can the investor be aware of it or track it?

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Dec 05, 2023

Question reformulated for clarity, but of course let us know if it does not address the original question. 

Top answer:

We recommend the investor add a Follow-On Investment Information Rights side letter to the SAFE. This would be something like:  While the Investor’s Safe remains in force, the Investor shall have the right to receive copies of subsequent...

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Top answer:

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. 

 -  Mike Suprovici
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Not able to submit deal memo for review

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Community Member
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Nov 22, 2023

Unable to submit the deal memo for review. The top right side button is disabled and on tab of submit - clicking on button does not work - tried on both safari and chrome on macbook.

Top answer:

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

 -  Matt Shields
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Integrations

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Nov 02, 2023

Is there a way to integrate with platforms such as Notion or Airtable? It will be easier to manage deal flow. 

Top answer:

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. 

 -  Mike Suprovici
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Could you please share best practice on how to write investment memo

Asked by:
Community Member
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Sep 22, 2023

could you share your favourite examples?

Top answer:

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...

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Top answer:

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...

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Why create a deal memo?

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Jul 31, 2023

Top answer:

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...

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Is investing in non-voting shares of a pre-seed company a non-starter?

Asked by:
Community Member
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Jul 28, 2023

Great company with good traction and an impressive founder. 

Top answer:

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...

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Is vesting as a requirement to invest in startups?

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Jul 23, 2023

What are the common terms to ask for vesting when investing in startups?

Top answer:

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

 -  Mike Suprovici
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Pro-Rata Negotiations

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Jul 21, 2023

What critical factors do Venture Capitalists prioritize in negotiating demands for Pro-Rata terms, given their case-by-case nature?

Top answer:

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...

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Optimum diversification in pre-seed and seed stages

Asked by:
Community Member
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Jul 21, 2023

I would like to ask about the number of startup investments in both pre-seed and seed stages to reach optimum diversification for a Fund of about €10 Million. 

Top answer:

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

 -  Mike Suprovici
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Top answer:

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...

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Redeemable preferred warrants

Asked by:
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Jul 20, 2023

What are best use cases for redeemable preferred warrants? I have heard they are most useful for seed rounds if founders want to maintain equity (by redeeming it) prior to a Series A, and I have also that they can be very expensive money. When doe...

Top answer:

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...

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Top answer:

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 ...

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I was an entrepreneur in a startup, in which I have fulfilled my vesting requirements. Can this be considered as deal warehousing?

Asked by:
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Jul 12, 2023

I was an entrepreneur in a startup, in which I have fulfilled my vesting requirements. Can this be considered potential deal warehousing?

Top answer:

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...

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Deal Warehousing

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Jul 10, 2023

Week 4 sprint asks for rockstar fast growing deals to warehouse. If a fund's focus is seed or pre-seed, i. e. before any or significant traction, how should one think about the definition of "fast growing rockstar deals"?

Top answer:

"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...

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Top answer:

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...

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Create a term sheet for a startup

Asked by:
Community Member
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Jul 05, 2023

How do I put together term sheet fast and easy?

Top answer:

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

 -  Mike Suprovici
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Term Sheet for a Start Up

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Jul 05, 2023

Is it possible to draft a term sheet for a start up venture without having to use a lawyer? Are there standard templates? Anything I should consider in deciding what to do?

Top answer:

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. 

 -  Mike Suprovici
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Top answer:

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, ...

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Warehousing Investments from Limited Company + Warehousing Future Syndicated Deals

Asked by:
Community Member
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Jun 28, 2023

I've read that one can transfer/warehouse angel investments but not SPVs. I made some angel investments directly from my personal account and also from a limited company that I have, any concerns about transfering them from my company? I got a f...

Top answer:

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 ...

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If you're planning to transfer an angel investment as a warehouse deal, what should be the minimum size?

Asked by:
Community Member
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Jun 26, 2023

Good evening VC Lab team! The GPs of Plaintext have made recent angel investments that are in the $10-25k range each. We're hoping to raise a $10m fund so  these would typically be too small given we plan on making 30-40 investments.  Nonetheles...

Top answer:

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...

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Deal Warehouse

Asked by:
Community Member
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Jun 26, 2023

I invested in a company as a fund employee (SAFT investment) deploying fund capital, but was also given an opportunity to invest my personal capital directly into the company's SAFT offering. Do I need to ask for permission from my prior fund to u...

Top answer:

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

 -  Mike Suprovici
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SAFE Notes and their purpose

Asked by:
Community Member
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May 25, 2023

Wasn't the original purpose of SAFE notes to be a bridge to a near future priced round of equity instead of a round unto itself for 18-24 months of runway?

Top answer:

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...

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Can I transfer a warehoused investment to the fund at FMV?

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May 03, 2023

Can I transfer a warehoused investment to the fund at FMV?

Top answer:

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 ...

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What types of warehoused deals should you have?

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May 03, 2023

What types of warehoused deals should you have?

Top answer:

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...

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What is Convertible Preferred Stock

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May 03, 2023

What is Convertible Preferred Stock

Top answer:

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...

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What is a Convertible Note

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May 03, 2023

What is a Convertible Note

Top answer:

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...

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What is a SAFE Note (Simple Agreement for Future Equity)

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May 03, 2023

What is a SAFE Note (Simple Agreement for Future Equity)

Top answer:

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...

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What is a Special Purpose Vehicle (SPV)

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May 03, 2023

What is a Special Purpose Vehicle (SPV)

Top answer:

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...

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What is a Roll-Up Vehicle (RUV)

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May 03, 2023

What is a Roll-Up Vehicle (RUV)

Top answer:

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...

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What is Pari Passu

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May 03, 2023

What is Pari Passu

Top answer:

"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.

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What is a Pro Rata

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May 03, 2023

What is a Pro Rata

Top answer:

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.

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What is a Pro Forma

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May 03, 2023

What is a Pro Forma

Top answer:

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...

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What is a Priced Round

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May 03, 2023

What is a Priced Round

Top answer:

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...

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What is a Lead

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May 03, 2023

What is a Lead

Top answer:

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...

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What is a Valuation Cap

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May 03, 2023

What is a Valuation Cap

Top answer:

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...

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What is a Stage

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May 03, 2023

What is a Stage

Top answer:

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...

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What is Syndication

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May 03, 2023

What is Syndication

Top answer:

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...

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What is a Round

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May 03, 2023

What is a Round

Top answer:

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...

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What is a Proof of Concept (POC)

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May 03, 2023

What is a Proof of Concept (POC)

Top answer:

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

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What is a Minimum Viable Product (MVP)

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May 03, 2023

What is a Minimum Viable Product (MVP)

Top answer:

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...

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What is a follow-on investment?

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May 03, 2023

What is it when someone asks if I am going to follow or follow-on?

Top answer:

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

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What is a Flat Round

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May 03, 2023

What is a Flat Round

Top answer:

A flat round refers to a funding round in which a startup company raises capital at a valuation that is roughly the same or very similar to its previous funding round. In other words, the company's valuation remains "flat" or unchanged f...

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What is an Exit

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May 03, 2023

What is an Exit

Top answer:

An exit is the sale or exchange of a significant amount of company ownership for cash (or for debt and/or equity of another company). Exits are a fundamental part of the venture capital investment cycle and allow investors to monetize th...

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What is Due Diligence

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May 03, 2023

What is Due Diligence

Top answer:

What the investor does to evaluate a potential investment opportunity.