Comprehensive Model of VCs' Investing Process

By and large, most researchers hold a similar view of the sequence of activities involved in this process, although not necessarily the scope of each. Figure 1 in this article consolidates the findings of extensive review of VC investing literature and illustrates the sequence of VCs’ activities from deal origination through to eventual exit.

In particular, it distinguishes two stages preceding an actual investment decision which have not been consistently separated in extant literature: screening and in-depth evaluation. The objectives for these activities differ: in deal screening, VCs attempt to filter out many of the proposals they are inundated with that don’t meet their focal criteria (e.g. not one of the industries they maintain domain expertise in, inconsistent stage-of-development); whereas in more in-depth deal evaluations VCs’ attempt to establish if they have a serious interest in a deal based on possible attractiveness including market factors (“a sizable problem exists”), technology/product/service factors (the enterprise offers or can develop an effective proprietary solution), management factors (e.g. is the team complete and balanced and is it the right team for the opportunity), financial return/risk prospects, identifying possible obstacles and how they could be overcome, and how the VC can add value to the investment opportunity.

The process diagram (Figure 1) is completed by including stages for deal structuring, various post-investment activities, and finally cashing-out or exiting the deal. Twenty-four new decision criteria are added as a result of my PhD research and 36 criteria are identified where VCs can be assisted by a professionally-qualified financial manager embedded in the investee, both before and during their investment.