tmp=FINANCING YOUR COMPANY AT USVP
Where does the money come from? USVP raises investment capital from a large set of blue-chip limited partners representing university endowments, pension funds, money managers, funds of funds, insurance companies and other institutions. These organizations allocate a portion of their investment portfolios to top-tier early-stage venture investors and expect significantly higher-than-average returns on their invested capital, concomitant with the recognized risk of venture investing. Meeting these expectations requires USVP to:
Gain access to the best and brightest entrepreneurs
Invest capital to achieve substantial ownership in the companies they create
Support companies in subsequent investment rounds both to encourage later round investors and to protect our ownership position
Ensure that the company's management and employees are adequately rewarded for their substantial efforts and sacrifices
Keep the interests of all invested parties aligned so that we remain focused on achieving similar outcomes
Work hard with the teams day-in and day-out to eliminate the operational risks and build each company's value proposition over time
Hold companies to shared high-performance expectations
Help them navigate the inevitable hills and valleys of building a great company
We work very closely with our companies over several years, usually serving on the Board of Directors. Our intense participation typically limits each partner to one to three new Board seats per year. At the same time, each of us sees several new opportunities every week. Once we make an investment you don't just get a partner, you get a partnership. You have access, not just to your USVP board member, but to all of us, depending on your needs.
This requires us to maintain a clear and efficient process of diligence and decision making, in order to arrive at investment conclusions and give entrepreneurs a clear indication of our interest as rapidly as possible.
THE PROCESS
We understand that raising start-up capital is a challenging and difficult process. After all, most of us have been on your side of the table in the past. Consequently, our investment process is designed to be straightforward and time efficient for the entrepreneur and the USVP team.
From our perspective, early-stage venture capital investing requires making subjective decisions based on incomplete data. Some large venture capital funds hedge their bets by making multiple investments in an attractive space. USVP generally avoids investing in companies that compete directly with each other. Consequently, our process is conditioned by the notion that we have one opportunity to build a market leader in a given segment.
SIX STEPS TO AN INVESTMENT DECISION
1. Connecting with USVP and securing a Partner to sponsor your company
2. Explaining your business
3. Mutual due diligence process
4. Presentation to the USVP partnership (click here for presentation guidelines)
5. Agreeing on terms
6. Post-investment process and teamwork for success
CONTACTING USVP AND SECURING A SPONSOR
We rely heavily on a large network of entrepreneurs, angel and venture investors, business associates, colleagues, professors, and other friends of the firm to source most of the 50 to 100 opportunities that each investment professional evaluates each year, in order to find the one to three companies he or she will champion to an eventual investment. This referral network is the primary source of our deal flow.
In addition, we often target a specific investment area of interest where we make a concerted effort to uncover every stone, meet every key individual and see every opportunity, in order to increase our participation in the segment. For example, in 2001 we took the initiative to expand our investment portfolio in the enterprise software segment with a focus on hosted applications. To this end we added a general partner and executed a firm-wide effort to increase our visibility. The result? Since 2001, we have made 12 enterprise software investments and have several very promising companies emerging from this work. Each year we take on one or two additional segments in this way. Sometimes this leads to increased investment activity. Other times we conclude that superior opportunities are not available.
We also examine unsolicited requests for investment and business plans that come "over the transom." We strive to leave no stone unturned when searching for that next great company.
Still, the best way to get your deal in front of USVP is to leverage an existing relationship. If you know one of us, by all means contact us directly. We love partnering with people with whom we already have experience. If not, here are some common ways entrepreneurs connect to us:
Check the Team section of the Website, which describes each partner's background and interests. Look for a common connection. Also look to determine which partners have experience in the area your company is pursuing.
Utilize professional connections you have, who may know us, like the senior management or directors of the companies where you have worked.
Engage with a connected professor.
Secure angel financing that is well connected to the venture community.
Work with an established venture-savvy law firm that can refer your deal to USVP.
Convince key industry influencers of the merits of your ideas and have them refer the deal. Or, perhaps have them join your advisory board.
Attend conferences frequented by venture investors and have a compelling "elevator speech" ready.
Once you have shown your presentation or business plan to one of us, a process of mutual diligence begins.
The goal of the USVP due diligence process is to make sound investment decisions based on all relevant and available data in the timeframe that the situation allows. Specific areas of focus in USVP's process are:
Market opportunity assessment top-down analyst forecasts, bottom-up TAM (total available market) estimates
Strategic partner and distribution partner references
Founding team and key contributor references, including blind references
Our direct experience with the team during diligence interactions
Assessment of the technology and product differentiation
Status and robustness of the product(s)
Competitive assessment
Sales status, sales forecast, detailed account status review
Customer and prospect references
Financial model: cash requirements and use of proceeds
Risks
We prefer entrepreneurs with the maturity to assess objectively their own businesses -- both opportunities and risks. Early-stage investing is a long-term commitment to working together -- the stakes are too high for either side to become "promotional" in their presentation of the opportunity.
The process usually begins with a referral phone call or an email that may result in an agreement to hear the story. Send us a PowerPoint deck or business summary (not a 100-page business plan). Please ensure that the information that you send to us at this stage does not include any proprietary or other confidential information. Such details may be discussed if we decide to move forward with our diligence process. We will determine on the basis of these materials if your business fits our current interests.
At any stage of the process, it would be wrong to assume that our unwillingness to move forward is necessarily a reflection on your company. There might be competitive issues (e.g. we have another similar investment), portfolio issues (e.g. we are already sufficiently "exposed" in that general area), bandwidth issues (e.g. we just made three new investments and need to digest those before we move forward), or other reasons we short-circuit the process. In any event, you deserve to know why, so if we don't volunteer it, just ask.
If we decide to move forward, we will begin a series of face-to-face meetings followed by several days of diligence working with your team to dig into your business model and evaluate your technology directly or via a third party, who will make phone calls to prospective customers, team references and industry pundits. Throughout this process we are getting to know you and your business better. At the same time, you are getting exposed to more USVP partners and making your own determination as to the "fit" of a potential partnership with us. We encourage you to call our references and engage in your own diligence concurrently.
When this work is complete, we will make a mutual determination as to whether we should move to a full partnership presentation. If that determination is positive you will have one hour, typically on a Monday to make your best case. The outcome of this meeting can take one of three forms:
Most likely, the presentation will result in additional questions the partners would like resolved before we reach a determination. This outcome usually requires one or two weeks of additional work before we reach a final decision.
Occasionally we will decide immediately to approve an offer of investment, or to make an offer contingent on identifiable and specific diligence, which we can complete rapidly.
At other times we will decide immediately not to go forward and let you know right-away so you can move forward.
Should we decide (after additional work or immediately) to make an investment offer, it will take one of two forms:
A terms sheet outlining the conditions under which we would make the investment, the amount we would like to invest and the share of ownership we expect to achieve for this investment; or
An agreement to invest alongside another venture firm on the terms and conditions they have already presented to you (with some possible amendments).
At this point you will decide whether to accept our investment proposal, request clarification or changes in our terms or (hopefully not) reject our proposal. If we agree on a terms sheet, we will move rapidly to close the investment and fund the company. This will require the participation of venture-savvy attorneys on both sides to prosecute definitive documents quickly. It may also require additional diligence, and perhaps some meeting of conditions. For example, if the company represents that it is two weeks away from signing a deal with a major customer and misses that milestone before the deal is consummated, it may require a change in the terms of the deal.
The due diligence cycle for USVP can range from five business days to three months, or more. It is situation dependent. For example, since we are comfortable with the case where two passionate entrepreneurs come in with no more than a slide presentation and a good idea, we will frequently take them under our wing for several weeks or months, while they develop their plan, before we make a significant investment commitment. During this time we strive to help them assess the merits and risks of what they are proposing and will work for several weeks helping them hone their idea, or, sometimes even altering it radically to increase the chances for a great mutual outcome.
Alternatively, we have reached very rapid decisions in situations where a well-known team is addressing a well-understood segment and wants to get started ASAP.
THE FIRST 90 DAYS OF A NEW INVESTMENT
We have learned that this time period is critical to your success, particularly for Series A investments. Early on, we will agree to a set of milestones (e.g. hiring progress, technical and product deliveries, indication of customer traction, process implementation) that we jointly expect the company to accomplish very rapidly after funding. At the same time we will be introducing you to resources that can leverage your efforts, such as:
Customer contacts
Job candidates
Lease and facility providers
Tools makers
Advisory Board Members
Board of Directors candidates
Start-up services
Recruiters; and Portfolio companies with complementary goals
After 90 days, we will make our first progress evaluation of the company to our partnership, and will do so at least every 90 days for the foreseeable future. This discipline allows us to marshal the partnership resources you require to keep the company moving towards a successful outcome for everyone.
During these progress evaluations, we explore ways we can offer you help, including getting additional partnership resources, or introducing to some in our network, who we think can assist your process.
In addition to providing regular input as Board members, we often participate in strategy offsites, occasional employee meetings, difficult negotiations, partnership discussions, customer reference calls -- even at times customer visits, when we have a particular connection.
You should look to us as part of your extended team and be proactive in utilizing USVP, whenever you think it can help you make progress on our mutual goals.
THE NEXT ROUND OF FINANCING
We will work with you early to position your company for the next round of financing so that it can be a positive outcome for all of us. To learn about our philosophy on raising the next round, see Entrepreneur Resource Center.