I recommend you watch the VCIC training videos first.
Disclaimer: this is not written in stone. VCs are notoriously individualistic. There is no agreed upon “VC Method” despite some teachings that claim otherwise. If your team understands the thinking behind the advice below, and you can explain your thinking to the judges, you will have a successful partner meeting. If you fill in the blanks but are not really sure of what it all means, and then tell the judges you used some form or standard VCIC methodology, you will have an uncomfortable Q&A with judges.
To download a printable version, go to bit.ly/vcic-return-analysis.
HOW TO HANDLE SEED ROUNDS
There are two different types of seed deals to consider:
Seed Round is Significantly Lower than Anticipated Series A (less than 1/5):
- Think of the seed deal as the chance to get in the deal early but use the projected Series A to calculate potential return.
- E.g., $100k seed with an expected $2M Series A. You may negotiate the seed at a $1M pre-money, resulting in lower than 10% ownership. But the Series A is projected to be a 2 on 4, at which time you will get 33%. Base your return analysis on the Series A.
- You could even offer a SAFE, but you still must project potential return based on the anticipated future Series A.
- Point is, you don’t care (much) about the valuation of this round…you’re focused on the A.
Seed Round is Close to the Size of the Series A (within 4X):
- Use the seed round to establish your percent ownership and reserve 3X of the seed round to maintain pro rata.
- E.g., $1M seed with an expected $3M Series A. For the seed round, negotiate approximately the percentage ownership you’ll need at exit, say $1M on a $4M pre, or 20%. Reserve another $3M, total investment is $4M (which is appropriate for a fund size in the $50-80M range).
For more, order Venture Capital Strategy on Amazon.