Navigating the FINCA Ventures Investment Process
Entrepreneurs building companies that seek to provide basic services to underserved populations are in ongoing search for patient capital. Situated in the pioneer gap, entrepreneurs frequently ask us, “How does your investment process work?”
FINCA Ventures provides patient capital and hands-on support to high-impact, early-stage social enterprises that offer affordable, high-quality and life-enhancing products and services for low-income families. The FINCA Ventures investment process seeks to be thorough yet nimble and entrepreneur-friendly. Each step in the process is a two-way street: Together, we are mutually assessing compatibility for a long-term and symbiotic partnership.
Building Pipeline
Our team actively evaluates new investment opportunities throughout the year. Each investment must help advance the mission of FINCA International. We build pipeline from a range of sources that include past co-investors, graduating cohorts of accelerators and incubators, portfolio company referrals, conference networking, industry ecosystem builders, and inbound requests. Additionally, we scour marketplace news and proactively seek startups that fit an impact thesis we are developing. In a typical year, FINCA Ventures identifies three to five new deals from over 300 pitches.
As soon as we find an exciting and promising opportunity that fits our criteria, we begin due diligence that is timely, thoughtful and, hopefully, mutually beneficial. We know from speaking with hundreds of entrepreneurs that a quick, definitive response is incredibly valued, and we try to balance this with needing time to do our homework. Yes or no, we hope our due diligence process helps us understand a business better, so we may support it more effectively and provide feedback that is valuable and additive to the entrepreneur.
Conducting Due Diligence
The FINCA Ventures due diligence process generally takes 6–10 weeks. We endeavor to be flexible and can adjust our timeline depending on the fundraise timeline requirements and entrepreneurs’ needs. This means due diligence may take longer as the company assembles multiple investors to form a complete round. We can use that extra time to get to know each other even better and often engage with potential co-investors to share due diligence workload. Regardless of timeline, we believe that transparency and respect are the cornerstones of any relationship. We aim to be open and honest about where things stand and respectful of the entrepreneur’s valuable time throughout the investment process, summarized in the following steps.
Step 1 — Initial Screen: The first step in our due diligence process is a bit of desk research. We request a pitch deck or other presentation material from the entrepreneur to help us better understand the business model, team and market opportunity. While we love talking to entrepreneurs directly, we want to make sure there is a potential fit with our impact-first approach and investment mandate before we take a call or meeting — we don’t want to waste your time.
Step 2 — Intro Call: If we see potential synergies with the FINCA Ventures investment thesis, we will hold a one-hour call to mutually gauge fit. This call serves two purposes: 1) we need to better understand if the business aligns with our investment and impact mandate and if we think we will be able to bring value to the company; and 2) the entrepreneur needs to understand whether we are the right type of investor that their company needs to excel. Never forget that it’s a two-way street. Come prepared to grill us with questions — we expect them!
Step 3 — Internal Discussion: After this initial conversation, we mull over whether we are the right partner for an entrepreneur, do additional background research and then decide whether we want to proceed with further due diligence. We do our best to get back to the company within 2–3 weeks regarding next steps.
Step 4 — Exploratory Due Diligence: If we decide to proceed, the entire FINCA Ventures team will hop on a call with the company to probe a bit deeper. Based off this second conversation, we will typically request access to a data room and additional materials to gain further insight into the business. We may send over a longer list of questions that are still on our mind at this point as we begin to dive in.
Step 5 — Devil’s Advocate Session: We create a 3-page “First-Take” document which provides an overview of the investment opportunity and how the company supports our investment and impact thesis. We present this document at an internal “Devil’s Advocate” session with a carefully selected trusted advisor who pokes holes in our investment rationale, provides insight into areas in which we should be doing deeper due diligence, highlights undocumented risks, etc. The advisor is chosen based on his or her industry expertise and ability to make us think outside the box. We believe that contrarian views make us sharper and this process generates questions that have proven helpful to entrepreneurs during the next stage of due diligence.
Step 6 — Commercial Due Diligence / Site Visit: We take new findings from the Devil’s Advocate session and start commercial due diligence, including a site visit to get to know the team, see the business model in action, meet with customers, partners, etc. We typically spend 2–3 days with the entrepreneur and the team to truly get acquainted and roll up our sleeves. We’ve got to kick the tires to understand the business and surface the areas where we can bring value. Equity investments are long-term partnerships and we want to make sure both parties come out of our time together even more excited to continue to collaborate over the years to come. During this stage we also want to get comfortable with the terms of the investment, narrow down the impact metrics that have been informed by the due diligence process, and get to know the other parties at the table.
Step 7 — Investment Committee: Once we’re back and have digested the experiences and learnings from the trip, we compile what we’ve learned, insights into how FINCA Ventures can support the entrepreneur, and how the company’s goals fit with the mission of FINCA International and how the company’s footprint, products and services align with FINCA Impact Finance — a global network of 20 community-based microfinance institutions and banks. Then, if everything looks promising, we draft an investment memorandum and present the investment to our Investment Committee (IC). We schedule IC meetings as needed. Our IC comprises five members outside of the FINCA Ventures team who make recommendations to FINCA International’s President and CEO, Rupert Scofield. IC members include select FINCA International board members who bring a wealth of diverse founding experiences.
Step 8 — Legal Due Diligence: Once we receive IC approval, we finalize confirmatory legal due diligence. This is when our General Counsel dots the I’s and crosses the T’s to make sure the groundwork is there for us to grow together. Additionally, we hope our legal checklist helps the entrepreneur understand all the documents they should have in place for a successful partnership not only with FINCA Ventures, but also with other impact investors in the future.
Ongoing — Post-Investment Support: We like to schedule a check-in call roughly one month after funding to determine areas in which FINCA Ventures can be supportive of the company’s operations. We seek ongoing relationships with our investee companies and strive to be a value-add investor. Beyond financial investment, FINCA Ventures engages and advises portfolio companies on a wide variety of post-investment support topics. These include but are not limited to: customer needs, impact evaluation and measurement, business operations management, sales strategy, brand development, marketing and communications, strategic partnerships and networking, customer financing solutions, access to talent, governance structures and future capitalization. The team’s expertise is leveraged to support portfolio companies while third-party advisors are also called upon to further add post-investment value to investees.
From here, the real work begins! We find that we are in touch with our entrepreneurs in one way or another every week or two, though this ebbs and flows with what is most pressing for the company. Needless to say, our entrepreneurs have our WhatsApp numbers which they are encouraged to use judiciously!
We hope this brings transparency to what is often an opaque process for entrepreneurs and impact investors alike. If you’ve made it this far, you’re clearly doing your homework about FINCA Ventures as a potential investor. Hopefully you now appreciate that we try do ours too. :)
Read it at: https://fincaventures.com/navigating-the-finca-ventures-investment-process/
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