VC Practices Survey
On being asked whether they had any reservations against being contacted directly for funding no VC was against it. Close to half |
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Two-thirds of the VCs were not against signing confidentiality agreements if the proposal seemed |
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As regards, preparation of the business plan, more than 70% of the VCs felt that it should not be more than 25 pages (excluding annexures). |
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Considering that VCs generally get a fairly large number of proposals for consideration, the expectation seems fairly |
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While the full business plan could be upto 25 pages; on first contact, VCs expect only a 3-5 page concept |
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It would be of interest to entrepreneurs to know that a third of the investment deals are struck directly with the VCs while another third are
through professional references. So |
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Many a startup suffers from lack of proper book/record keeping and ad-hoc management systems. These would not attract |
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Interestingly enough, one-fifth of the deals have been reported through dealflow facilitators |
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The general aversion of VCs to outside help is borne out by their reply to another query where 40% have stated |
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An average due diligence exercise lasts between 2-4 weeks according to half the VCs. Another third quote a |
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The average time between first contact and final funding of the investee company currently stands at 1-2 months for a third of the VCs and 2-3
months for another third |
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of the VCs expressed a clear desire to be contacted directly while the remaining
were open to being contacted directly provided that the entrepreneur had at least a concept paper/ executive summary or a business plan ready. Only a few years back most VCs would have preferred to be contacted through
reliable references. However, a fast changing environment where too much money is chasing too few good deals a direct contact could mean the vital difference between who gets the fish and who doesn't.
open to any means of contact. Most (86.7%) replied in
the negative when asked whether there were any deal flow facilitators whom entrepreneurs could contact to help them in contacting the VCs.
attractive enough or if the entrepreneur insisted. One in three were not in favour of
signing such agreements. Once again, changes in the business environment have made VCs more amenable and flexible; a few years ago most would have summarily rejected signing of such agreements.
logical. Entrepreneurs would do well to keep their sales pitch concise
and to the point. 
paper. At the most a mini business plan of 10-15 pages could be considered.
entrepreneurs can go ahead and make direct contact with the VC but they would be well advised to have a sound business plan ready. 
VCs - so entrepreneurs need to shape
up! Slightly less than half of the VCs reported that over 60% of the cases where they conducted due diligence got funded. Therefore, once an entrepreneur reaches that stage he has a nearly 50% chance of getting funded. A test
due diligence exercise, conducted internally, could of assistance to bring out any deficiencies before they are pointed out by the VC.
. Apparently, while the VCs may not have any desire to deal through dealflow
facilitators they are not averse to taking up cases referred by such professionals! 
that they never employ outside consultants for due diligence but sometimes
(30%) they have to employ them in order to manage work peaks.
time period of 4-6 weeks.Considering that nearly 70% of the VCs report receipts of over 40-50 proposals a month, it seems that an inordinately long time is spent by the VCs in their due diligence exercise.
Farming out of due diligence to outside professionals could help the VCs to cover more proposals and utilise their corpus more productively. It could also improve the low ratio of proposals received 
per month to the average number of ventures actually invested in during a year, which
stands at a low of under 5 for 41.4% respondents and 5-10 for another 41.4%, i.e less than 10 proposal per annum for over 80% of respondents. This means that only 2% of the proposals received (about 300 during
2000-2001) would actually get invested in! Considering that over 60% of cases where due diligence is conducted get funding, it means that only 3% 
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the proposals received are considered worth while for getting a due diligence conducted. This further means that entrepreneurs have to be very clear in their concept papers regarding their business plan,
else their proposal stands an over-whelming chance of being rejected at the application stage.
. Considering that an
average due diligence takes up nearly a month and a lot of time is required for legal formalities and other follow-up, the time taken for funding is quite acceptable. |
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