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An implementation demonstrating a product for feasibility demonstration but generally not ready for customer deployment (which would be the Minimum Viable Product).

An implementation demonstrating a product for feasibility demonstration but generally not ready for customer deployment (which would be the Minimum Viable Product).

A Minimum Viable Product (MVP) is the most basic version of a product or service that can be created and released while still providing value to early users or customers. The primary goal of building an MVP is to quickly validate assumpt...

A Minimum Viable Product (MVP) is the most basic version of a product or service that can be created and released while still providing value to early users or customers. The primary goal of building an MVP is to quickly validate assumptions and test hypotheses about the product's viability, market demand, and potential for success with real-world users.

A follow-on investment is investing in a subsequent company fundraising round.

A follow-on investment is investing in a subsequent company fundraising round.

A flat round refers to a funding round in which a startup company raises capital at a valuation that is roughly the same or very similar to its previous funding round. In other words, the company's valuation remains "flat" or unchanged f...

A flat round refers to a funding round in which a startup company raises capital at a valuation that is roughly the same or very similar to its previous funding round. In other words, the company's valuation remains "flat" or unchanged from the previous round of investment. While a flat round may indicate challenges or cautious sentiment, it's important to note that securing funding, even at a consistent valuation, can still provide valuable capital to a startup. However, for startups seeking substantial growth and aiming to increase their valuation significantly, a flat round might not be the ideal outcome.

An exit is the sale or exchange of a significant amount of company ownership for cash (or for debt and/or equity of another company). Exits are a fundamental part of the venture capital investment cycle and allow investors to monetize th...

An exit is the sale or exchange of a significant amount of company ownership for cash (or for debt and/or equity of another company). Exits are a fundamental part of the venture capital investment cycle and allow investors to monetize their investments and generate returns on the capital they have deployed. For VCs, an acquisition and an IPO are the two basic exits of an investment.

What the investor does to evaluate a potential investment opportunity.

What the investor does to evaluate a potential investment opportunity.

A down round refers to a funding round in which a startup company raises capital at a lower valuation compared to its previous funding round. Down rounds can occur for various reasons: performance concerns, market fluctuations, financial...

A down round refers to a funding round in which a startup company raises capital at a lower valuation compared to its previous funding round. Down rounds can occur for various reasons: performance concerns, market fluctuations, financial pressures, etc. It's important to note that while down rounds can be challenging, they are not necessarily indicative of a startup's long-term potential. Some successful companies have faced down rounds at various points in their history but managed to recover and achieve significant growth.

A spreadsheet that breaks down who owns what in a startup. This may also include the calculations for ownership, dilution and liquidity for previous and future rounds. A well structured cap table is extremely important and should be revi...

A spreadsheet that breaks down who owns what in a startup. This may also include the calculations for ownership, dilution and liquidity for previous and future rounds. A well structured cap table is extremely important and should be reviewed by investors as part of a due diligence process: • Capital journey:  is there adequate equity for future rounds of fundraising, do the founders and key stakeholders maintain meaningful ownership, or will some significant dilution be required? • Transparency - who are the current and previous investors, are there any with controlling positions (how are thier interests aligned?), are there any indications of disproportionate ownership positions or inconsistent valuations? • Is there an adequate employee option pool? • If the cap table is sub-optimal it can be a significant barrier to investment - it is better to fix this sooner rather than later. A useful resource is the Cap Table and Exit Waterfall Tool Excel model from https://foresight.is/cap-table/

Rate at which a company consumes cash, typically expressed monthly. Gross Burn Rate is total  each month, including all operating expenses: salaries, contractors, legal, rent, marketing, R&D, software licenses, cloud/hosting etc. Net Bur...

Rate at which a company consumes cash, typically expressed monthly. Gross Burn Rate is total  each month, including all operating expenses: salaries, contractors, legal, rent, marketing, R&D, software licenses, cloud/hosting etc. Net Burn Rate is Gross Burn Rate minus any earned revenue.

A metric of the ratio of Total Value of a fund based on valuation of the investments relative to the Paid-In capital. This is often used as an interim indicator of fund performance. TVPI is basically equivalent to MOIC. TVPI is calculat...

A metric of the ratio of Total Value of a fund based on valuation of the investments relative to the Paid-In capital. This is often used as an interim indicator of fund performance. TVPI is basically equivalent to MOIC. TVPI is calculated as the sum of the realized return and the remaining unrealized return divided by the total capital paid in to the investment. Here's the formula for TVPI: TVPI = (Realized Value + Residual Value) / Total Paid-In Capital In a simplified example, suppose a venture capitalist (VC) invested $5 million in a tech startup. 1. Realized Value: After two years, the VC sold a portion of their shares for $3 million. This amount is the realized value. 2. Residual Value: The VC still owns some shares in the startup, which are currently valued at $4 million. This amount is the residual or unrealized value. 3. Total Paid-In Capital: This is the initial amount that the VC invested in the startup, which in this case is $5 million. So we can plug these numbers into the formula to calculate the TVPI: TVPI = ($3 million Realized + $4 million Residual) / $5 million Paid-In Capital TVPI = $7 million / $5 million TVPI = 1.4x The TVPI of 1.4x means that for each dollar invested, the VC has so far received 1.4 times that amount back in realized value, and still has additional unrealized value remaining in the investment.

One very large return drives the overall results. Why VC funds are looking for outliers.

One very large return drives the overall results. Why VC funds are looking for outliers.

National Venture Capital Association https://nvca.org. They provide a comprehensive set of model documents intended to streamline VC transactions. Membership also provides other benefits, like a limited subscription to PitchBook (otherwi...

National Venture Capital Association https://nvca.org. They provide a comprehensive set of model documents intended to streamline VC transactions. Membership also provides other benefits, like a limited subscription to PitchBook (otherwise $20k/year for unlimited per firm).

A metric that describes the value or performance of an investment relative to its initial cost.. This is often used as an interim indicator of fund performance. MOIC is basically equivalent to TVPI.

A metric that describes the value or performance of an investment relative to its initial cost.. This is often used as an interim indicator of fund performance. MOIC is basically equivalent to TVPI.

The annual management fee that is allocated to the General Partner (GP) as % of committed capital. 2% is relatively standard, smaller funds may have higher fees.

The annual management fee that is allocated to the General Partner (GP) as % of committed capital. 2% is relatively standard, smaller funds may have higher fees.

Limited Partners (LPs) are investors in your fund that provide capital. The most common types of LPs are high net worth individuals, pension funds, family offices, sovereign funds and insurance companies – just to name a few. They can be...

Limited Partners (LPs) are investors in your fund that provide capital. The most common types of LPs are high net worth individuals, pension funds, family offices, sovereign funds and insurance companies – just to name a few. They can be individuals or corporate entities themselves, but are nonetheless called LPs by you and your team. 

The internal rate of return that a fund must achieve before its general partners (managers) may receive a portion of the proceeds of the fund.

The internal rate of return that a fund must achieve before its general partners (managers) may receive a portion of the proceeds of the fund.

The time allowed for a fund to deploy capital into investments. Usually 24 - 36 months.

The time allowed for a fund to deploy capital into investments. Usually 24 - 36 months.

A standard financial measurement used for investments - based on cash flows. For benchmark, good real-estate investments return 8-11%, upper-quartile VC funds (after 7-10 years) achieve IRR averaging 20% (but with standard deviation of 3...

A standard financial measurement used for investments - based on cash flows. For benchmark, good real-estate investments return 8-11%, upper-quartile VC funds (after 7-10 years) achieve IRR averaging 20% (but with standard deviation of 30!) Note that measuring IRR only makes sense after investments have exited, a single large return will drive all of the fund stats (and make everyone happy). See Power Law.

General Partners are the fund manager responsible for making investment decisions. You can learn more about the VC roles here: https://govclab.com/2021/10/28/venture-capital-roles

General Partners are the fund manager responsible for making investment decisions. You can learn more about the VC roles here: https://govclab.com/2021/10/28/venture-capital-roles

For VC funds, this is usually 10 years with optional extensions.

For VC funds, this is usually 10 years with optional extensions.