PS#008: The Hunting License
Happy holidays, everyone!
As promised, today I am going to talk about the second checkpoint – The Hunting License.
This is a really important step in the investment process. It’s the “license” for entering full diligence and allocating significantly more of a firm’s time/resources to the opportunity.
Bonus! Even if you’re not currently at a venture firm, this is a great format to use during the interview process to showcase your skill set.
Let’s dive in…
This is all about allocating resources.
The purpose of the “Monday Morning Partnership Meeting” is to decide where the firm should focus their time, resources, and capital.
To help guide those efforts, the investment process is designed with checkpoints to allow firms to pivot their attention to other opportunities.
The 90-second investment pitch is the first checkpoint.
The hunting license is the second checkpoint.
For the second checkpoint, we hold a higher standard because it has a higher opportunity cost.
After a first call, the 90-second investment pitch is an ask to allocate resources for preliminary diligence. This equates to about +20 hours of additional work (i.e., market sizing, competitive analysis, research, reference calls, etc.) to decide if the opportunity is worth further attention.
The Hunting License on the other hand is asking the firm to dedicate 100+ hours of resources and usually multiple individuals.
This is a significantly higher ask and therefore requires a more detailed pitch.
The Hunting License should include an overview, assessment, and plan.
We can break the Hunting License into three parts:
Overview
Assessment
Plan
Let’s go into each…
Overview
The overview should give a high-level description of the company and investment opportunity.
As I’ve mentioned previously, a venture firm will review hundreds if not thousands of deals, which means they often review many deals in each partnership meeting.
You want to be prepared with a concise summary of the company and the investment opportunity to make sure everyone is on the same page.
Clear and concise communication is critical.
The overview should include…
Company details – name, logo, location, founding year, short description, etc.
Team – background information about the executive/founding team
Solution – a short description of the product/service being offered
Market – key information about the market opportunity for the company
Customers – high-level detail on the current or targeted customer base
Financials – important operational/financial metrics (i.e., revenue, cash, runway, etc.)
Funding – prior fundraising details and existing investors
Current round – outline of the proposed investment structure/opportunity (i.e., valuation, amount of capital, other investors, etc.)
Assessment
Now that you’ve set the stage, it’s time to present your current opinion.
After spending 20+ hours working through preliminary diligence, you’ll have an opportunity to present your view on several aspects of the company, including…
Management team – Why do we believe they are positioned to succeed? Are there gaps in their skill set?
Market size – Why do we think this is a venture opportunity?
Competitive advantage – Why will this solution win in the market?
Go-to-market/market validation – How do they acquire customers? Do they have product-market fit?
Execution – How have they performed to date?
Valuation/return – At this stage, do we believe this meets our return thresholds?
Structure/co-investors – How do we feel about the structure and other investors?
Strategic fit – Why does this make sense for us?
Depending on the situation, you might not have all the answers, which brings us to the next section…
Plan
You’re not expected to have a clear answer to all of these questions.
BUT, if you don’t have an answer, you do need a plan. You will need a diligence plan to learn more about each of these areas, especially the ones considered to be the top risks.
As someone new to venture, this is your opportunity to showcase your skill set.
The goal is to show the broader partnership that you will do X, Y, and Z to better understand the risks associated with the investment.
I provide a full breakdown of how to design a diligence plan in my course How to be a VC Associate. I’ll walk you through all the details.
Be prepared. Act like a partner.
I said it at the beginning – this is all about allocating resources.
By putting together a detailed hunting license with the items above, you are showing them that you can act and think like a partner.
That’s the goal.
Communicate clearly and concisely. Present your opinion. And, even when you aren’t sure, propose a plan to figure it out.
At the end of the day, whether you’re trying to break into a venture or just starting, it’s all about showing that they can trust you.
Show them that you will be detailed, thorough, and responsible stewards of the fund’s capital.
One more time for good measure – Be prepared. Act like a partner.
