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Weekly Briefing Note for Founders

10th October 2024

This week on the startup to scaleup journey:
  • What founders can expect at an investor's IC meeting

What founders can expect at an investor's IC meeting

How do VCs make investment decisions? For many founders this process often appears opaque and shrouded in mystery. But we do know where it starts and where it (hopefully) ends.

Sometime after the first pitch meeting and immediately before issuing a Term Sheet the pivotal moment arrives. The Investment Committee (IC) meets and makes the final call. Are they in or out?

In many cases this meeting is held behind closed doors. But increasingly founders are being asked to attend. This gives the IC the opportunity to hear the story from the horse's mouth and grill the founder on their investment proposition!

Many founders have little idea what to expect in this crucial decision-making forum: This could be the first time they have raised institutional finance, or previous investments might have been from VCs where the IC was internal-only. But they may now have to face this new and uncertain challenge.

As diligence levels rise, understanding how to navigate this high-stakes meeting is becoming an ever more important part of the founder toolkit. Given the huge effort it has taken to get this far in the process, no-one wants to fall at the final hurdle.

Today, we look at the IC Meeting and where it fits in the overall investment process. We highlight the role of the lead partner and how they become the founder's coach. We explain how the investor prepares for the meeting, and we provide pointers on how founders can make the best possible impression.


Investment Process

The exact process will vary from investor to investor. Some, especially pre-Seed solo GP funds, will adopt a more informal approach to decision making. But for the majority of Seed stage funds a formal investment process will take place. At Series A and beyond the degree of rigour increases significantly.

There are typically 6 main steps in the process:

  1. Pitch meeting - The founder sets out their story. This is usually a 1:1 pitch, ideally to the partner who, if all goes well, will lead the deal for that investor.
  2. First internal memo - If the lead partner finds the proposition compelling, they will capture their key findings in a short 'memo'. This will be discussed at the firm's weekly partner meeting as they seek support to investigate the opportunity in more depth.
  3. Commercial due diligence - Further meetings and calls with the company will then ensue, market research is undertaken, and customer reference calls are made. Hopefully, the lead partner gains conviction and wants to invest.
  4. Second internal memo - This is known as the 'investment memo'. It sets out for the partnership why the lead partner is recommending this investment. More on this key document below.
  5. IC Meeting - The forum where the final investment decision is made. Often in 2 parts: Part 1 where the founder and certain members of their team attend, and part 2, where the IC privately discusses and decides.
  6. Term Sheet - an offer is issued summarising the key investment terms.

The IC Meeting (often just referred to as the Partner Meeting) will usually comprise the key partners in the firm. Sometimes, external experts advising the VC may be involved. If invited to attend, a founder could find themselves presenting to anywhere between 5 and 15 people. To prepare for this meeting it is essential that the founder seeks guidance from the lead partner that is 'sponsoring' their deal.


Role of the lead partner

By the time an investment decision makes it onto the IC agenda, the lead partner sponsoring the deal will have done a great deal of internal selling. They will have put their weight (and reputation) behind the opportunity and will have effectively become the startup's internal champion.

In the lead up to the IC meeting, founders should seek advice from the lead partner to discover what dynamics will likely be at play:

  • The role of the IC Meeting - is this a rubber stamp event or a full-blown debate that could go either way?
  • Who should attend from the company side in addition to the Founder/CEO?
  • Who will attend on the investor side and what are their roles?
  • What will they know about the company and where are they likely to focus?
  • Are there likely to be any hot topics?
  • How best to structure the time slot (typically 1 hour) to ensure all the key subjects are covered?

Understanding the role of the meeting and how it plays into the final decision is vital. This will vary from investor to investor.

As VC and former founder Liz Wessel of First Round Capital points out in her excellent article on the subject, "Unsurprisingly, power dynamics and decision-making models can sometimes play an important but often unspoken role in a venture capital firm. Savvy founders who can read between the lines and understand how this works in the context of a particular firm’s partner meeting will sometimes have a higher chance of walking out with a term sheet."

The lead partner will hopefully guide or coach the founder on all these questions so they can fully prepare. This includes providing some background on the key personalities. Founders should review the experience and expertise of each likely attendee in advance, so they are not caught by surprise.

There will likely be no or only very brief introductions of IC members on the day. This will just be in the interests of time if this is a large group. Everyone will just want to get started. This is where a founder's advance preparation will pay dividends.

On the day itself the lead partner is likely to play a much more objective role in front of their peers. Often this means that they will take more of a back seat in the meeting and let the partnership have their 'moment'.


How investors prepare - the investment memo

Investors will usually be well prepared for this meeting. The lead partner will have written and circulated an 'investment memo' in advance. Founders will likely never see this confidential, internal document that sets out the case for investment, but we can predict the core topics.

A memo typically spans 5 to 20 pages, even at Seed stage. Over the years we have been fortunate to get eyes on a large enough sample of such documents to provide some useful insights for founders. Bessemer Venture Partners is one of the very few VC firms that has published a selection of investment memos from years past and this can also be a useful resource.

Unsurprisingly, the major chapters of these memos follow a similar flow to the typical investor pitch:

  • Founder backgrounds & vision
  • Market overview and problem
  • Solution/Product
  • Go to Market & Business Model
  • Traction/Financials
  • Team
  • Competitive landscape
  • Lead Partner insights (risks, customer & founder diligence, investment return scenarios)
  • Recommended deal shape and offer

The most fascinating insights usually come from the lead partner's assessment of the team and the findings of customer reference calls. This is where some advance coaching from the lead partner can be invaluable. If any awkward questions have arisen that might provide ammunition for the IC to put the founder on the spot in the meeting, a discrete heads-up can give them time to prepare their thoughts.


Making the best impression

Some tips for founders on how to make the best impression in this forum:

Come ready with your investment pitch. This provides structure and helps ensure you communicate all the key messages. Expect that questions will be out of sync with the pitch and be clear in your mind how you will handle this.

At the beginning there maybe be no introductions on the investor side, other than perhaps the chair. This can be unsettling but if you have done your homework on the attendees this shouldn't phase you. However, make sure to introduce your team.

They are going to give you the floor initially, but this will likely be a very 'interactive' session. Expect to be interrupted. This is an interview and IC members will likely put you and your team to the test. Stay calm. They will want to see how you react to a little pressure.

Try and take questions as they arise but you must find a way to keep to your general flow without appearing evasive. Practice these types of transition beforehand. Remember your slides are only there as a backdrop to your story.

As Liz Wessel adds, expect to 'altitude shift'. People are often very good at high-level storytelling or explaining the atomic-level details, but rarely both. "The best pitches are ones that can altitude shift. The best founders can paint a picture of what they’ll be doing in 10 years and then zoom all the way down into the weeds of today and how they’ll get there."

How you handle yourself and your team in the meeting will provide a window onto your leadership and management qualities. Work out in advance the roles that each of your team will play in the meeting. Know all your numbers cold. Manage the time. If the discussion is going off course and the clock is winding down, don't be afraid to (politely) step in.

Above all, create the right 'vibe'. Don't take yourself too seriously. A little humour always helps but don't go overboard!


What happens next?

The next steps will depend on the firm, but the IC will likely debate the opportunity after the founder and their team has left the meeting. A decision will then be made and communicated - usually via the lead partner - either later that day or some short time after.

Suranga Chandratillake at Balderton has written an interesting piece on how different firms make the final call. He says sometimes there’s a vote with some sort of bar to make an investment. Sometimes the lead partner can decide themselves, but they will get challenged by their partners.

He adds, "There can be subtleties - some partners may have vetoes, there may be ‘weighting’ on the voting scheme and so on. Balderton is unusually simple on this - we have an equal partnership that we think is better for us and entrepreneurs, so everyone votes and all votes are equally weighted."

There are 3 potential outcomes from the meeting:

  • A flat 'no'. Good venture firms will let you know that as quickly as possible and with as much detail as possible on why they are ‘passing’.
  • An absolute 'yes' and you can expect a Term Sheet to follow, or
  • A 'maybe'. This is becoming increasingly common. The lead partner will be asked to revisit some aspect of the due diligence to answer questions their partners have raised before coming back for a new decision.


In summary

  • Increasingly, founders are being asked to attend the investor's IC meeting. This gives the partnership the opportunity to hear the story from the horse's mouth and grill the founder on their investment proposition.

  • To get your investment onto the IC agenda, the lead partner sponsoring the deal will have done a great deal of internal selling. Ask them for insights on who will attend and the likely hot topics so you can fully prepare.

  • The lead partner will have written and circulated an 'investment memo' in advance. Founders will likely never see this confidential, internal document that sets out the case for investment, but they can predict the core topics.

  • The IC Meeting is an interview and members will likely put you and your team to the test. Expect that questions will be out of sync with the pitch and be clear in your mind how you will handle this.

  • How you conduct yourself and your team in the meeting will provide a window onto your leadership and management qualities. Above all, stay calm and create the right 'vibe'. Don't take yourself too seriously.

  • When all is done they will remember how you made them feel rather than what you said.



Let's talk!

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