🖖 Welcome to Closing The Gap by JVH Ventures. After founding multiple companies and investing into more than 50 startups and 9 funds, we realized that a common understanding between founders, angels, and VCs is often missing.
We want to close this gap and combine perspectives from all sides.
Our goal is to look behind closed curtains and tell the honest truth.
Follow along to gain insights from all directions!
VCs always do it! Why shouldn’t angels do it as well?
We found it extremely helpful to validate our gut feeling by writing a short Investment Memo. It doesn’t need to be complicated, long or exhaustive - just a guide to reflecting your thoughts and making sure to check all the boxes.
Here we want to walk you through our Investment Memo structure step-by-step, including trigger questions (which are of course not exhaustive):
1. Deal overview
It all starts off with a general overview to collect all information in one place.
This is especially helpful if you share the deal or collaborate with others. If you work alone, this section can gladly be skipped.
Example:
2. Investment highlights
This is the executive summary in just 2-3 sentences. Summarize the main points about the startup, about the investment and why it will be a winning deal.
3. USP
Summarize the main USP and differentiation of the startup. This is one of the most critical factors for your investment to work out.
2-5 bullet points and try to keep it as short as possible
If you have problem naming the USP or keeping it short, it might be an indicator of weak differentiation.
4. Product
This section briefly summarizes the product. Make sure you get a good feeling for how the product works and how users are interacting with it. Also, determine the current state and the development roadmap.
How does the product work?
What benefit does it offer?
How scalable or automated is the approach?
If it helps, include some screenshots and definitely try out the product yourself if possible.
Move the slider on this scale to determine current product status:
Example:
5. Business model
Most startups have not yet an established business model. Therefore, it’s super important to challenge founders and get their thoughts on future plans, even if for example pricing is not established yet.
How does the pricing look like?
Are their multiple monetization strategies?
How does the monetization develop over time (e.g. via customer numbers or land-and-expand, etc.)?
What is the secret sauce in their business model?
How do they model their financials and what are key levers for their growth strategy?
6. Go-To-Market
Here it is about summarizing the startup’s GTM strategy (geographic or vertical expansion, partner sales, customer segments, etc.) and challenging their assumptions on marketing and sales.
What is the nature of their sales (e.g. inbound, outbound, high education requirement, fighting against current solutions, etc.)?
How do they build their marketing strategy?
What is their current and prospective CAC? Is it realistic?
Do they include churn in their planning?
How do they plan their sales team and campaigns?
What does their current traction or customer-base look like?
7. Market & competition
Market size
Getting to the market, we are seldomly challenging their market size assumptions. Still, we are interested in big markets and even more in the dynamics of the markets.
What is the market dynamic?
Does it offer room for disruption?
How does (geographical) scalability look like?
Porter’s Five Forces
Even though this is somewhat an old-fashioned approach, applying Porter’s Five Forces is a good structure to get a quick 360° view of the market. It also helps to put competition in a perspective, to help challenging the founders.
Threats of new entrants / Risk of being easily copied
Threat of substitution (alternative solutions)
Buyer power
Supplier power
Existing competition
8. Financing
Importantly, we always start with looking into the prior fundraising, before we discuss the current round. Capital efficiency is extremely important to focus on and also to understand the startup’s journey until today.
In addition, we also look into the next fundraising round (e.g. mostly first VC round for us), to understand if the founders are matching their plan to VCs expectations.
Prior fundraising
What did they raise so far (Capital efficiency!!)?
At what valuation and what investors joined?
Current round
What is the goal of their fundraising?
How is their raise budgeted?
Runway?
Next round
When and how do they plan their next round?
How is the institutional appetite/climate for them?
What are the potential terms for the next round?
9. Team
We know it’s difficult to analyse or even meet the whole team as angels. Mostly, we just talk to one or two of the founders. However, we started to deep dive on their profiles and gather some understanding of their possible movitations and skills.
Do their profiles and roles match with their challenges?
Are there strong synergies in the team?
What are their individual motivations?
What is the chemistry you sense and what are their strengths/weaknesses?
Example:
10. Investment hypotheses
While this might be strange for most angels, it actually helps a lot to summarize your assumptions. What needs to work out to make this a breakout deal? If there are too many wild assumptions, it might be better to skip it.
Summarize your 3-5 main hypotheses of the deal
What drives the deal?
What market conditions need to be met?
Does it match your strategy?
Writing them down will give you a good form of reality check on your hypotheses
11. Key risks
This is just another form of your hypotheses, looking into specific risk factors. For example, a young and inexperienced team is definitely a risk factor.
We use this qualitative summary to feed our Risk/Return Calculator in the next step.
Here we quickly look into the risk factors of the deal
Is there any special team, product, market, etc. risk?
12. Return profile
This became an essential step for us. It’s very helpful to get a feeling for the size and behavior of the case and we use the results in internal sparrings a lot.
We use our Risk/Return Calculator to check our financial assumptions and match it to our portfolio strategy (e.g. is the return potential large enough to support the entire investment portfolio?).
We feed the calculator with our assumption (including quantifying the risk factors from above)
Next, we analyse the results of the calculator, in order to see if it matches our strategy, including potential pro rata effects.
Example:
If you are interested in using our Risk/Return Calculator (including dilution projection, pro rata simulations and expected returns calculation) feel free to pre-register for our upcoming angel community
13. Deal Character
This serves as a quick overview of the deal characteristics. No good or bad, just a guide to reflect and an easy way to match against your strategy.
Example:
14. Strengths and Weaknesses
Again, just a quick guided reflection exercise to identify overlooked weaknesses or confirm conviction with strengths.
Example:
15. Cap table
As cap tables are often overlooked at the angel stage, we also want to set a checkmark - as a pure sanity check.
In general we only watch out for imbalanced cap tables, dead equity, and prior dilution.
Nothing fancy, just the current overlook (you can also ask the founders to fill it in your template):
Example:
16. Deal terms
To finish off the analysis of the memo, we summarize all deal terms.
If still empty, this is your reminder to gather all necessary details before making a commitment.
Example:
If you are interested in our Investment Memo template, getting access to our tools and receiving our weekly deal flow - feel free to pre-register for our upcoming angel community:
Thank you for reading! If you liked, feel free to share it with someone else who could profit from it - angels, founders, VCs, anyone :)
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PS: We are always happy to answer your questions or take on topics you want to hear about to close the gap! Just let us know.