Post-Investment Value Add - Deepstash
Post-Investment Value Add

Post-Investment Value Add

VCs are active investors and strive to add value to their companies after they invest. 

VCs are critical in the professionalization of startups: they will improve governance through strategic guidance, by structuring the boards of directors and by helping in hiring outside managers and directors.

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Investment Selection

When considering a deal, VCs will look at the attractiveness of the market, strategy, technology, product/service, customer adoption, competition, deal terms, and the quality and experience of the management team.

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Give the uncertainty of most of their investments, it is not surprising that most VCs don’t really use financial techniques such as DCFs or NPV to evaluate their investments. 

Most commonly metrics used are cash-on-cash return, multiple of invested capital and net IRR. An other interesting finding is that fewer than 30% of companies meet projections.

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VCs syndicate around 65% of their investments in an attempt to share risks, build reputation, reduce capital constraints and gain complimentary expertise.

The intended goals of VCs contracts are to make sure that the entrepreneur does well if he/she performs well while providing VCs with leverage if the entrepreneur does not perform. VCs achieve these objectives through cash flow rights, control rights, liquidation rights and employment terms. 

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Deal Sourcing

Deal sourcing refers to the process by which VCs attract entrepreneurs and sort through those opportunities to make an investment decision. 

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From a venture capitalist’s point of view, the ideal entrepreneur:

  • delivers sales or technical advances such as FDA approval with reasonable probability,
  • tells a compelling story and is presentable to outside investors,
  • recognizes the need for speed to an IPO for liquidity,
  • has a good reputation and can provide references that show competence and skill,
  • understands the need for a team with a variety of skills and therefore sees why equity has to be allocated to other people,
  • works diligently toward a goal but maintains flexibility,
  • gets along with the investor group.

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Investment Tips
  • Set Your Objectives. (setting long-term objectives can be of great benefit.)
  • Level of Risk. (The level of risk associated with the investment option you choose must be carefully analysed before you put your money into something.)
  • Control Over Emotions. (One of the primary requisites of investing in the stock market involves controlling your emotions.)
  • Study the Stock Market. (Order types, financial definitions and metrics, various kinds of investment accounts, timing of investment, methods of selecting stock, etc.)

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Investment explained

An investment is a gamble: instead of the security of guaranteed returns, you're taking a risk with your money. 

You can invest in Shares, Bonds, Funds, Government bonds (gilts), UK property market or even Farmland, Vintage cars, Wine, Fledgling technology, firms or art.

For most, investing means putting money in the stock market.

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