Finance & Operations

5 Documents to Have In Hand When Approaching a VC

November 8, 2011

When going out to raise money, entrepreneurs expect to have to provide a good deal of information to potential investors. Any decent venture capital fund is going to need to speak with some customers, assess the technical capabilities of the product, dive deep into accounting practices and conduct background checks on the management team, among other items. While most expect this to follow the signing of a term sheet, many entrepreneurs are unaware of the data they need to procure prior to executing a letter of intent (LOI).

Below I outline the basic data most often needed before even beginning term sheet negotiations:

  1. Financial statements: Be prepared to compile financial statements from the last few years, including most recent quarters and projections. These should include a comprehensive P&L with costs broken out by functional area, a recent balance sheet and a recent statement of cash flows. Investors like to have a sense for the financial picture before throwing around pre-money valuations.
  2. Sales data: It is good to have at the ready data around salesperson productivity, quotas, bookings, sales methodologies, sales process, channel contribution, and more. This may seem a bit noisome for relatively early stage discussions, however a quality go-to-market strategy and distribution model are what distinguish great businesses from good businesses.
  3. Capitalization table: Prior to thinking about the size of the option pool or anti-dilution mechanisms, venture capital firms are going to want to understand the make-up of the current ownership. What do the founders own? What do angels own? What do other VCs own? What warrants are outstanding? Without this, there is no deal.
  4. High-level product vision and road map: This is another item that may seem over-the-top for pre-LOI purposes, but it can be critical for technically savvy investors to wrap their head around the product and its competitive advantage. What’s the next bit of functionality? Which OS is the product supporting next? Without this information, there is a gap in the investment thesis that is untenable.
  5. Market data: An investor will often request data from reputable market sources to help inform their perspective on a company. Most will want to know what Gartner or 451 Group thinks of Company X and will want help in coming to terms with the addressable market size.

Lastly, depending on the investor’s familiarity with the Company, sector or technology, he or she may request to speak with a few current customers prior to inking an LOI. This serves as a litmus test for the VC before diving headstrong into a due diligence period.

Photo by: TheeErin

Chief of Staff/Director

Daniel was an Associate at OpenView Venture Partners where he took part in the investments in uSamp, Kareo, Prognosis Health, Mashery, NextDocs and Xtium. Currently, Daniel is Chief-of-Staff/Financial Strategy Director at <a href="https://www.anthem.com/">Anthem</a>.